I have been to GC many times. As with almost all travel, there are ways to economize and reduce costs...GC and diving are not cheap but with some planning you can reduce the costs.
You've described our typical GC vacation quite accurately, and we often use a similar approach on other islands like Bonaire.
We usually travel during the low season because it is cheaper and less crowded and we like to celebrate our anniversary (but there is an increased risk of storms) and we do try to get the best deal on airfare. We also use a credit card that doesn't have any foreign transaction fees and that earns rewards miles.
When we are on Grand Cayman we stay in a 1 bedroom apartment with a full kitchen at Turtle Nest Inn in Bodden Town because there is only 2 of us and we don't really need a condo, although the TNI condos are right next door if we wanted a condo.
TNI is in the center of the island and about 10 to 12 miles from the Seven Mile Beach and Georgetown so we have pretty easy access to most areas but we are away from the higher-priced, more developed areas of West Bay and 7MB. TNI is a pretty, clean, family-owned property, not luxurious but quite nice. A rental car comes with the apartment and we use it to tour, dive, snorkel, and have fun all around the island.
TNI sits on the water on a lovely beach, it's not the Seven Mile Beach but still beautiful and there is good snorkeling right outside the door. We mostly snorkel and shore dive on GC because it is cheap, easy, and good - but the best diving is on the walls and so we usually do a day or two of boat diving also.
We also bring some food with us but Cayman Air (with its 2 free checked bags) only flies from Chicago during the high season, so we are usually stuck taking American Air or another airline. Having to pay to check the bag just negates the value of the food products so we don't bring too much.
We usually cook 2 meals a day and go out for one meal (either lunch or dinner) or order a pizza. I don't go on vacation to spend a lot of time cooking but it is not hard to make breakfast or a sandwich. There are a lot of good grocery stores and restaurants on GC so it is easy to find items to match your preferences. We considered staying at the all-inclusive Cobalt Coast on GC for our upcoming trip but we decided we prefer our usual venue.
When we are on the sister islands of Little Cayman or Cayman Brac we prefer an all-inclusive that covers lodgings, food, and diving, and we only rent a car for one day to tour the island. The food is buffet style but very good and there are not many restaurants or grocery stores on the island so we don't cook our meals. We don't like the big mega-resorts but LCBR and CBBR are small, diver-dedicated resorts and that suits us just fine, and during the low season you can get great prices on an all-inclusive dive trip! And they offer free valet dive services and we like that a lot!
So like you, I agree that Cayman is not cheap, but with some planning you can control the costs and there are some intrinsic values that we like a lot. The diving is very good and the boat rides are short. The islands are clean and safe and have good roads and good communication systems and excellent healthcare facilities. You can eat the food and drink the water without concern and although mosquitoes are ever-present, they have good abatement programs and low incidence of tropical diseases. English is the official language and the locals are friendly. There are a lot of things to do on GC and they don't all cost a lot of money, see the links below.
I am looking forward to heading back to Cayman!
http://www.tripadvisor.com/Travel-g147365-c164561/Grand-Cayman:Caribbeanriving.Tour.A.Guide.html
http://danilew.biz/blog/2014/03/03/grand-cayman-paradise-found/
http://www.scubaboard.com/forums/cayman-islands/437891-topside.html#post6532430
http://snorkelblog.tumblr.com/