Sometimes the attempt to cheat is so unhidden and openly cynical, that anything other than the toughest possible penalty suffices. But the handling of the issue of diving in football is so riddled with inconsistencies and even downright hypocrisy it has almost become as big a problem as diving itself. For example, why is gamesmanship mostly being frowned upon when it comes to attacking phase, but largely accepted as a normal part of the game when applied by the defensive side?
Or making the distinction between conning the referee ( when gamesmanship equals cheating) and pulling dirty tricks on opposing players (when that same gamesmanship is mostly accepted as normal part of the game, despite its openly cynical, rule-breaking and occasionaly dangerous nature). All the while the berating and haranguing of those same referees by a gang of players after every meaningful decision going against their team is being accepted as an inevitability, about which nothing can be done about.
To use a cycling analogy for how diving is largely seen in football is to consider every single sticky bottle taken in any bike race equally egregious to the one that got Nibali thrown out of Vuelta 2015. Regardless of the circumstances. And that is having a clear negative effect on refereeing. Attention has shifted from holding a consistent line of officiating to avoiding giving soft fouls and cards (specially in case of red cards and penalties) in an attempt to avoid rewarding diving and giving the game soft appearence. As a result refereeing has become more and more inconsistent, and often far too lenient.
It is no coincidence that out of the top European leagues, the refereeing is clearly at its worst in Premier League, where the outcry over diving (and nostalgia for idealised past that has never really existed) has been the loudest and lasted for longest. No-one wants to see clearly egregious over-the-top playacting being rewarded, but going to the other extreme and demonising everything that could be seen as diving as well as looking for and seeing diving in every single contact, is not exactly the smarter way to approach the issue. The kind of low-brow puritanism that is prevailing currently among football fans does not really do the game and specially the referees any favours.
The disrespect of the official I see as the biggest problem. That and the preponderance of forwards among media personalities on the game, who campaign for the striker's 'right to go down', as the exaggerated dive has become more an act of appeal for a free kick than an attempt to actually claim that the contact received was sufficient to cause the response. And the fixation of the sport on protecting the biggest names, as though nobody would go to the matches if a couple of the biggest names were suspended. There are a few things about the way diving has become normalised that I think are bigger problems, however. I wish referees would call those fouls where the attacker deliberately trails a leg or runs with the leg at an unnatural angle in order to catch contact from a defender against the attacking player, since it is them that initiates the contact, and with all the fuss about the handball rules at the moment because of arguing what constitutes an unnatural position, no elite athlete has ever run by dragging their trailing foot along the floor either, so by initiating contact with the defender in an unnatural position, these incidents should be considered the forward fouling the defender rather than vice versa.
You talk of the nostalgic response in the EPL toward an imagined past with no diving, but while this is largely idealised as you say (and rose-tinted nostalgia especially in northern European football for an era where defenders were afforded much more rope to be physical than they are now), for much of the 80s and 90s diving was largely restricted to doing so in order to win free kicks and penalties. The particularly harsh response of fans towards play-acting in the EPL that you mention is also probably a legacy of the style of football. Different regions have their distinctive styles of football that have developed there, and Britain's is "route one", a very direct and physical game often born out of poor weather and heavy surfaces that meant the ball would be kept in the air and physically fought over a lot more than in South America or the Mediterranean countries. As a result I would wager that toughness is valued more highly to traditional fans in that style than in, say, jogo bonito or tiki-taka, and consequently, the act of diving is seen by those fans not just as conniving, but as cowardly too.
I differentiate the basic dive to win a decision from the more recent (last 20-25 years or so) tendency to dive in order to secure unwarranted disciplinary action against the innocent party, which I see as a worse offence. While we can all laugh about and ridicule Rivaldo for being hit in the knee by the ball and going down holding his face, the fact FIFA fined him afterwards doesn't give Hakan Ünsal back the time on the pitch or the Turks the time in fair battle that was robbed of them by that deceit. The laws of the game have been progressively more restrictive on what physicality defenders are able to get away with, and protecting the stars has become paramount to the big money interests at the top of the game, and those few teams that the top players tend to congregate in know that and take advantage of it, and so there is also a bit of a harsher response to incidents where the team already heavily advantaged cheats to get themselves advantaged further.
The berating and haranguing of the referee is a separate (but partly related) issue, and it has been steadily getting worse. Referees are occasionally empowered to respond to players and told to take a zero tolerance approach to dissent, but as soon as one referee takes them up on that and books about 15 players for insolence and disrespect, the press slate the referee for ruining the game, and no other referee dares take a stand lest they get similarly accused. Plus, a bit like the baseball coach that goes out to argue with the umpire and gets tossed from the game to spark some life into his team, sometimes if the players weren't contesting a decision they'd get accused of not caring enough.