The burden of proof rests with those who suggest that the only palaces (or foundations thereof) that we've found, were not meant for the living. I'm unconvinced; for me, a cigar is usually just a cigar.
It'd be nice to hear someone has unearthed the tomb of a Cretan monarch, something of a point of reference. While I'm wishing, let him be sleeping with a copy of a Minoan-Egyptian dictionary!
All those bathtubs, and no faucets? Alternatively, not a necropolis, but so many bathtub sarchophagi? The idea that the Cretan necropoli were palaces was dreamed up by Arthur Evans, living as he did in the heyday of the Victorian-era British Empire. There's nothing in any of them to suggest that they were used as palaces. The strange lack of tombs on the island -- considering the extent of the supposed palaces -- contemporary with the so-called Palatial period should tell you something.
As Wunderlich pointed out, the plunderers of the necropoli dragged the remains (and occasionally the sarcophagi) out into the daylight and pulled out the valuables, leaving the human bits and some smashed sarcophagi in a few large deposits next to the structure. This is similar to the plundering pattern that took place during times of upheaval in Egypt, when the tombs of the pharaohs were plundered.