I live in Tokyo right now. Tried to setup a HN Tokyo GT, but that didn't work out :/
You can eat at McD's for 100 yen, maybe 350 yen for a happy meal. I used to get by on McDs during my ultra poor initial few months in Tokyo.
As for eating properly; I usually eat for about 1000 yen when I go out, as I know a lot of the decent / cheap places. However, step into any reasonable restaurant and you're likely to be hit with sticker shock. I don't think it is really possible to eat healthy for less than 2000 yen per person without having extensive local knowledge.
As for the deflation story..
Commodities and groceries cost more than they did 2 or 3 years ago. Cheese, for example, costs almost twice what it did when I first arrived in this country (2.5 years back). Living space is at a premium in Tokyo. The apartment renting scene is as shark-infested as ever. The monthly price was more or less the same as it was last few years, and they basically wanted 6 months pre-payment for anything built since 1980.
The Japanese media has been hyping deflation, but the only deflation I see is in salaries. Whether it is anime artists getting by on as little as 100,000 yen a month in Tokyo (!) or my girlfriend working 15 hours a day without overtime (for Proto corporation, the media conglomerate that did Goonet), it seems everyone "normal" is making less. (This might be quite different outside Tokyo, as most other prefectures have been losing population this entire time.)
As for myself? Oddly the economy is picking up for me.