A naive search shows you get a 1000 sq feet house for 2K$ in MV/Sunnyvale. If it's really true, that doesn't exactly sound a huge amount. Look at the rents in Paris or Stockholm, and imagine you're paid 50k$.
Take Stockholm as an example. I found it to be ridiculously to be expensive .. even to eat out! That just means people don't eat out as much as they do in NYC or SF. However, the wait staff were wearing far better clothes than me and didn't seem to care about tips ... I believe they get paid better wages than the US. That's good for them. I don't think they should get paid any less. I'm just saying it is a different social structure.
I guess its a supply/demand thing. SV has high demand for engineers and not enough supply of employee talent, therefore salaries increase to compensate. (Although judging from this thread they haven't increased enough..)
Europe does not match the talent demands of SV (maybe because fewer big internet companies based there), therefore salaries don't need to increase as much to attract talent. The demand is a lower proportion of the supply...