The free food thing is so that the unemployed don't all starve to death.
If it makes you guys feel better, I'm pretty sure they can spend their entire wage on entertainment, even if they're already spending a third of their wage on housing...
Yeah it certainly has sunk away an amazing amount of my time as well...I think it's that underneath everything it's actually a pretty robust simulation of the actual people running the society, plus the charm of the cute, casual tropical megalomania. And the music.
But the thing I would love most for this game is a proper harder mode, one where all those tyrannical edicts etc are actually useful (Rebel Yell doesn't cut it). If I knew how to mod the thing, I'd make the factions become more and more demanding over time (like in Absolute Power but more so), with more demands from each that are contradictory to each other, so you can't make them all happy. I'd make more-educated people much more demanding, so that building an intelligentsia is dangerous to a would-be dictator. I'd make faction respect a much larger component of each person's happiness, especially the better-educated. And I'd make the economy tighter, with lower export prices and considerably higher import prices (so that importing raw materials is still useful for keeping things trucking along, but not really worth basing an entire industry on). In particular, I'd raise the import price of food a LOT to encourage a home-grown food industry like in the olden days (while still making food import useful in a pinch to stave off starvation when things go a little pear-shaped).