Bashir's dad was interested in status so I guess failing was a problem to him. Maybe you just don't get to interact with people socially outside of your place in evolved society. So all his friends on earth are a bunch of other wannabes living in their boxes without groupies.
I don't think Earth is that crowded. A lot of the population died off in WWIII and it takes a long time to rebreed that many. I assume they have immigration laws still otherwise they'd be flooded with folk from shittier planets looking for their own box with a view of the park.
I bet the back to the land movement is huge with people growing their own food.
No, the entire surface of Earth is one giant holodeck filled with refugees from all over the Federation. Everything is automated, everything is taken care of. Sisko's restaurant, the Picard vineyards, the Janeway farms in Indiana... all fake. People pretend to go about their business because the government pumps them full of drugs that make them forget the pointlessness of it all, to prevent mass suicides.
That's what Sisko meant by "paradise."