I am not sure how using it successfully on a live server makes it useless? That sounds like its the way to go since you have it working. Ideally PowerGallery is best run on your live server since it sets everything up for you including the database and file structure.
It should still work on your localhost, but when you are to go live its best to run the installation wizard on your live server instead of trying to then move the files up manually. There are ways to do it, but we recommend running the installation wizard since that sets up everything for you and checks the server requirements and things like that.
PowerGallery provides a full administrative backend to upload and manage your images in addition to all of the front end galleries we include. The spry demo, while nice, looks like its a front end demo only.
If you can reply with the direct link and PHP code PowerGallery gives you on the Add to Site admin page, that might provide some more details on any path issues that might be occuring.