Hi Andy,
Believe me, you will love your holiday at the Terracos.
Friendliest place I have ever stayed at and I have been doing package holidays since 1983.
the hotel itself is quite small,but it is spotless.We had room 109,a two bed apt.it was big and the balcony was very large and we looked out onto farmland.Sitting with a cold beer watching the geese,birds and cockerels was very relaxing.Would recommend earplugs though as the walls are thin and the cockerels usually start about 5am.
The pool is quite small,but there was a good sized patio area to sit and have a chat with the other guests over a beer.
the hotel bar is also small but in the evenings all the families and couples would get together and mix.
the guys behind the bar,Rui,Pedro and Fernando will make you welcome straight away and they are superb with the kids.
As for Vau itself,there really isnt a lot there but the are a couple of decent restaurants down by the beach.Jacaranda especially,the owner is a mine of information.they will also sell you a pint if you are not eating.1 euro until 6 or 7pm.
Dont bother with the local supermarkets apart from stuff like water,go to the Continente in Praia da Rocha and stock up,only a 5 euro cab ride home.
In the evening we used to walk along the cliff top or beach(depending on the tides)into Praia da Rocha.Not the prettiest town in the world but a good choice of places to eat.
the other side of Vau is Alvor which is really good.Only a 5 minute bus ride away.
We didnt have a car,local busses are very frequent and can get you to many places.
Regarding the cost of living,like you we knew it would be expensive.If you are planning to eat out lunchtime and evening every day it will cost you an arm and a leg.For a few days we bought some fresh rolls,cold meat,beer,fizz etc and took a Tescos cold bag down to the beach and had a picnic.
Also be warned,if you are with Skytours your transfer will be long.On the way out ours took 2 1/2 hours as we had to drop off in Albufeira etc.Yet other people's transfer only took 1 hour.
Aside from that,one of the best holidays i have ever had and i really envy you going there soon.
You will have a great time Andy
All the best
Alan