Rab - regarding the question of how do the locals afford the cost of living, I think the answer therre is their style of living. They will use the markets and of course buy products that are not familiar to us at much more resonable prices. They do also invariably travel out to Mercadona Inca and the likes of Al Campo, which many of the visitors to PP can not, or do not want to.
In general, every resort will have it's front line expensive restaurants many of which are not good, some are, then you have the second, third and fourth lines where prices generally tend to get lower.
I do not think that PP is any different in it's pricing to any other top Mediterreanean resort. Having been to Barcelona in February the prices were no different to PP, which is supposed to be the Jewel in the Med, and I am sure the situation is just the same in places like Nice and Rimini, etc.
PP has been getting expensive for years now (having been coming since the late 60's) and the exchange rate has just compounded the effect.
It will not stop me coming back but I will adjust my cloth accordingly.
GG