I don't think it's vague at all. EU 261/2004 has nothing to do with package holidays and only deals with flights, and states "Since the distinction between scheduled and non-scheduled air services is weakening, such protection should apply to passengers not only on scheduled but also on non-scheduled flights, including those forming part of
package tours".
It makes no mention of being entitled to accommodation refunds, only unused tickets. "reimbursement within seven days, by the means provided for in Article 7(3), of the full cost of the ticket at the price at which it was bought, for the part or parts of the journey not made"..
I also found this on a site about knowing your rights "If you have booked a package holiday, you are only entitled to a refund on the flight element of the package and must contact your tour operator".
Since the airline has to pick the tab up for any costs incurred through cancellations, delays and denied boarding, to me it is obvious that as they have no responsibility other than flying you to and from your destination, that anything other than flights would not be covered. In lot's of package holidays, the airline and tour operator aren't vertically integrated, so why should they have to pick the tab up for another companies part of the package?
Tour operators/airlines have a method of working out what the flight element of a package costs, and will tell you how much you are entitled to. I enquired a few years ago about cancelling under the EU regs (eventual delay was 12.5 hours). We spoke at length to the Thomsons duty manager at the airport and he told us that of course we could cancel but would only be entitled to the flight refund (which is what we knew already).
We didn't cancel in the end, partly because it was our silver wedding anniversary holiday and partly because it was an expensive holiday and the flight element refund was going to be peanuts. I'm so glad we didn't, it was one of the best holidays we've ever had!