Simple, all they have to do is erase all of his memories and insert him as a fetus in a pregnant woman in the Matrix. Note that the woman doesn't have to be really pregnant in "real life" just in the matrix. I would think that every body in the matrix has to be connected to a real brain in the real world. It might be too complicated for the matrix to insert characters into the matrix and have them lead realistic lives.
As to how do they ensure that he'll be someone famous? All they have to do is make him the son of an already famous person. After all, children tend to take after their parents so that if the parents are famous the children will be famous, if the parents are rich the children will be rich.
The real doozy is that Cipher was a man, but what happens if they give Cipher the body of a female? Is that where lesbianism and gayness comes from?
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