I'm actually born and raised in Key West, but as for expenses is why I don't live there anymore lol but it's worth every penny for a vacation.
Best beach in my opinion in Key West is Fort Zachary Taylor, it is a state park so you have to pay to get in.
If you aren't bringing a boat and want to experience the water offshore, Fury Adventures in Key West is super popular and they have several different catamaran excursion package deals. I recommended that place to my friend who had no clue what to do for his friend's bachelor party and that was their favorite highlight of their trip. http://www.furycat.com/
Second favorite beach is another state park called Bahia Honda in Big Pine Key.
If you want to save money on alcohol, don't buy liquor at liquor stores in the Florida Keys because prices down there can be outrageous. Stash up on the mainland.
Marathon is actually not that bad, and not as crazy as Key West. Sunset Grille in that area is a fun day time hangout and has a large pool and everything is facing the 7 Mile bridge.
A lot of the restaurants are great in Key West, and so are the bars. There is public entertainment with performers at Mallory Square and there is always something going on in the evening. They call it the Sunset Celebration (close to Duval) and it's worth to check it out. Just let me know of anything you are looking for that you want to experience down there and I'll be glad to help out.