We present detailed comparisons of the intracluster medium (ICM) in cosmological Eulerian cluster simulations with deep Chandra observations of nearby relaxed clusters. To assess the impact of galaxy formation, we compare two sets of simulations, one performed in the non-radiative regime and another with radiative cooling and several physical processes critical to various aspects of galaxy formation: star formation, metal enrichment and stellar feedback. We show that the observed ICM properties outside cluster cores are well-reproduced in the simulations that include cooling and star formation, while the non-radiative simulations predict an overall shape of the ICM profiles inconsistent with observations. In particular, we find that the ICM entropy in our runs with cooling is enhanced to the observed levels at radii as large as half of the virial radius. We also find that outside cluster cores entropy scaling with the mean ICM temperature in both simulations and Chandra observations is consistent with being self-similar within current error bars. We find that the pressure profiles of simulated clusters are also close to self-similar and exhibit little cluster-to-cluster scatter. The X-ray observable-total mass relations for our simulated sample agree with the Chandra measurements to ~10%-20% in normalization. We show that this systematic difference could be caused by the subsonic gas motions, unaccounted for in X-ray hydrostatic mass estimates. The much improved agreement of simulations and observations in the ICM profiles and scaling relations is encouraging and the existence of tight relations of X-ray observables, such as Yx, and total cluster mass and the simple redshift evolution of these relations hold promise for the use of clusters as cosmological probes.