(1) When Harry arrived for the meeting, he said, "I can't believe it. Someone is living in the parking garage."

The context — the fact that people aren't usually allowed to live in parking garages, along with Harry's surprise and, quite possibly, his anger — indicates that whoever is living in the garage hasn't been there long and will probably be forced to leave very soon; in other words, the context shows that the situation is being regarded as temporary.

(2) While the roof of his house is being fixed, Tom is living in a hotel. He'll be there for a couple of weeks.

There are three things in the context here which indicate the present continuous is the best tense: (1) the 'while'-clause which shows that the event described in the main clause will continue for a limited time; (2) the fact that Tom is now living in a hotel (a temporary residence); and (3) and explicit statement in the second sentence that Tom is only going to be in the hotel for two weeks. The first of these indicators sets the "linguistic context"; in other words, because of the meaning of the conjunction, "while" (a "function word"), it would actually be a grammatical mistake to use the simple present in the main clause. The second and third indicators set the "real context"; in other words, they describe the "non-linguistic situation."

(3) Jane has an apartment in the center of the city; her parents live on another floor in the same building.

Here it would not be grammatically incorrect to use the present continuous, "Her parents are living on another floor in the same building." In fact, it is quite easy to imagine a situation in which it would be the normal, natural thing to say. A speaker could use the present continous here to suggest that Jane's parents are living temporarily in their daughter's building. (Perhaps they have taken an apartment there because they sold their large house when their children moved out and haven't yet been able to find a smaller one. Perhaps they are living there because they want to help Jane with her new baby and intend to return to their house in the country when they are no longer needed.) However, "are living" is not a correct answer here because it is not the normal verb tense to use in this linguistic context. In other words, unless the speaker wanted to suggest that Jane's parents' situation was somehow temporary, the simple present would be used.

(4) Tammy just got back from Peru where she has been working for three years. Right now, she is living with her parents, but she won't be there for long.

Here, the linguistic context makes it quite clear that the speaker sees the real context as temporary. The use of "just" and the present perfect continuous make it clear that Tammy has only recently arrived at her parents' and the last sentence explicitly states that she will not be there for long.

(5) When Dick and Jane came to visit him, Tom told them, "Be careful if you go into the garage. I think a couple of raccoons are living in there."

This is similar to (1) above. In the first place, the real context being described implies that the speaker regards the situation as temporary. Almost no one wants wild animals living in their garage. Also, the presence of "I think" indicates some uncertainty in Tom's mind and suggests, perhaps, that if he were certain about the raccoons, he would act quickly to get rid of them. The simple present ("A couple of raccoons live in there") would be grammatical, but it would, I believe, strike most native-speakers as slightly comic, as if suggesting that the raccoons were paying rent.)

(6) "Sam and Ted live on the same street," said Jane, "but they never talk to each other except in the office. I guess that's because they don't agree about politics."

This is similar to (3) above, but it is, perhaps, even clearer here that, although the present continuous ("Sam and Ted are living on the same street") would not be ungrammatical here, it would not be used unless the real context was that Sam and Ted were living only temporarily on the same street. Since there is nothing to indicate that that is so, the correct answer here is definitely "live."

(7) Before showing the film, Tom explained to his students that elephants usually live together in large groups."

Here the simple present is used to describe a general fact not, as in (3) and (6) to describe a particular situation. The generality of the statement is indicated by the omission of an article before "elephants." As is usually the case when the use of a particular tense is required by the linguistic context, the use of an alternative tense is likely to be a grammatical error. Non-native speakers often, ungrammatically, use the present continuous ("elephants are living") in contexts like this. (If the article "the" were inserted before "elephants," then a grammatical sentence would result. It would have a different meaning though: it would seem that Tom was not speaking generally but referring to a particular, previously identified group of elephants.)

(8) "Right now, Harry and Sarah are living very well," Dick told Ted, but they don't have enough money to keep it up for long."

"Right now" is a quite strong indicator of temporariness and, as such, it tends to create a linguistic context that requires the present continuous and eliminates the possilibity of using the simple present; the second clause, strengthens the sense of temporariness. (Using the simple present ("they live") would not actually be a grammatical error here, but it would certainly sound unnatural.)

(9) Benny was crying because his butterfly had died. Jack told him that most butterflies only live for a few days, but Benny didn't believe him.

This is very similar to (7). Jack is talking about butterflies in general, not describing any particular butterflies.

(10) Two days after the earthquake, Sam sent Harry an e-mail. He wrote: "I am living in a tent and it's very cold at night. I hope I'll be able to get out of here tomorrow."

In this case, the real context being described is obviously a temporary one. Everyone knows that the situation immediately following a serious earthquake is a temporary one. Moreover, a tent is usually a temporary place to live. Finally, Harry makes it clear that he regards the situation as a temporary one. "I live in tent" would be grammatical, but extremely unnatural; it would make it seem as if Harry was changing the subject and talking about where he had lived before the earthquake and where he hoped to return to.