Do we Live in a Democracy
No.
Most people don't know what a democracy is, nothing to be ashemed of, if nobody has told you, how are you expected to know.
A democracy is a government where the people decide on policy. i.e. all citizens are free to propose a law, and all citizens are free to vote on that law. AFAIK, this no longer exists anywhere. Instead, many countries allow their citizens to vote for a representative, who creates laws on their behalf. this is known as a republic.
Being an archaic country, Britain isn't even a republic. The head of a republic, is voted into power by the people, and given the title President. We don't vote for our leader. You couldn't vote for Tony Blair (unless you lived in his constituency), and we certainly can't vote out Elizabeth Windsor..
So next time somebody rants about the virtues of democracy, you can tell him where to go - ancient Greece.
The Second Chamber
In Britain, we still have unelected officials sitting in The House of Lords. While having hereditary peers is distasteful for some, they do play an important role. The second chamber acts a consciousness for the government, a place for reflect, and broader thinking. If the second chamber was elected in the same manner as the first, why wouldn't a Labour rules second chamber rubber stamp everything passed to it from a Labour ruled commons? As a liberal, I've always wanted proportional representation (PR) , and if we can't get PR implemented for The House of Commons, I hope that it is used for the second chamber. This would encourage people to vote for parties with social conscience at their heart, such as The Green Party. At present, the reason there are no Green Party members in government is nothing to do with peoples views, and everything to do with the unfair "first past the post" voting system.
Referenda and On-Line Voting
Governments are reluctant to initiate referenda, and reserve them only for matters of constitution consequences, such as joining the European Union. Are politicians scared that referenda will take away their position of power. Alternatively, perhaps they are against democracy. For example, if the death penalty were put to a public vote, it would probably pass, but professional politicians will not bring back the death penalty - they deliberately go against public opinion.
Can Politicians Buy Votes
I was watching a program set in Venezuela, and it frequently put down President Chavez, on the grounds that he is using the income from oil to "buy votes", by subsidising food for the poor. As an analogy, would children vote out Santa Claus? I find it strange that people can use the phrase "buy votes" as a slur. If a politician is doing what his voters want him to do, how is that a bad thing? Buying votes is a sign of a republic working as close to a democracy as possible. i.e. the people's representative is acting in the way the the people really want.
BTW, from the little I know of President Chavez, I'm not a big fan - I think he's an awful leader. He has large oil reserves, which are a one-time resource. IMHO, such resources should not be spent on day to day costs, but instead should be put towards investments in the future, so that all generations will benefit from the oil, not just one generation. Gordon Brown has an analogous position; he will borrow to invest, but will not borrow to spend.