1) Absolutely correct. There is nothing wrong with greywater. It's used where I live. But it's not nearly enough.
2) Too much. People here is the valley always bring up desalination as some magic bullet, not understanding how expensive desalinated water actually is.
Desalinated water costs about $1000 per acre foot (325,000 gallons) at the source. I don't know what the price would climb to given the energy required to move the volume of water farmers use, but I'm pretty sure it would be substantial.
Meanwhile, farmers are used to buying surface water sourced from the aqueducts and reservoirs at $150.00 per acre-foot.
There could be a hypothetical scenario where farmers would shell out the enormous price for desalinated water, but as soon as the rains returned and the inland surface water resources became available again, the desalination plants would have to be shuttered due to lack of demand.