Vivir del cuento
 

Does this mean living with you head in the sand? (vivir sin enfrentar la realidad)?

"vivir del cuento" means to live without working, usually due to other's work or inherited money. Also politicians or not-understand artists can suffer it.
I think "vivir del cuento" (lit: living from telling fairlytales) it's because they have money but nobody sees them work, or because they earn money only with words ("selling smoke")

An example, referring to Mark Rothko:
A- Mira que bien le va a ese Rothko, gana mucho dinero
(look, Rothko it's earning a lot of money)
B- ese vive del cuento, pinta dos cuadrados de rojo y azul y ya está
he lives without doing nothing, he paints two colour squares and done

Saludos :D