Should we compete for tenure positions at top universities or be happy at second tier universities?
As I am sure you expected, this is a highly personal decision that nobody can make for you. Since you seem to be based in Europe (you are talking about ERC), I will frame my answer in the context of applying in Europe:


Your point that "you are the man" at a lower-ranked university when you bring in a high-reputation grant may be accurate, but you also need to ask yourself the question why people don't routinely bring in such grants in these institutions. Do they not support applying for grants in the same way? Do you not get enough time to develop an excellent research program? Do you not have access to sufficiently qualified students? Are the grant agencies biased in their evaluation? As a rule of thumb, it's typically harder to develop an internationally excellent research program at a lower-ranked university than at a top one, for a combination of different reasons.
Especially, ensure that the lower-ranked university that you are looking at actually values the same things you do. Many lower-tier universities "officially" want to compete for top grants and improve their research profile, but not at the expense of what they already do. In practice, this may mean that you have to compete for top-level grants while doing more teaching or service for your institution.
The "label" of working at a top university can help you in various ways, including easier access to valuable companies and excellent students.
There are challenges with being a "big fish in a small pond" - the small fish around you may not be thrilled, there may be little to no chances to collaborate or get inspired, and it's much easier to have large impact if you are not just one faculty standing alone.


With all that said, there are certainly advantages to being at a lower-tier university:


It can be easier to have a reasonable work-life balance at a lower-tier university. However, again, do be mindful of teaching and service responsibility - I have certainly seen people at smaller teaching universities that are considerably more busy than I am, because they have to teach an awful lot more than me.
As you say, it's easier to get a job at a lower-tier university, and a faculty job now may be better than getting, maybe, a faculty job at a top university in 3 years (or not).
Salary-wise, there will initially be little difference between excellent and lesser universities. I doubt that top universities pay less than weaker ones. However, you are right that if you actually end up as the big fish in your small pond, you have a good basis for negotiation - but that feels like something that you should not rely on in your career planning.