As for the Buckingham Palace shops, here's what they say officially:
Buckingham Palace says: "It's purely a business decision. Retail outlets at official residences have never accepted other currencies. "The shops are not geared up to deal with currency exchange - this is not an anti-European decision."

As for only 1% of shops in Britain accepting the Euro, that may still be true for the whole of Britain on a shop count basis. It is far from true for London (if I may trust our newspapers) and those shops accepting Euros are the largest on a turnover basis. Look here for a 2nd of January news report of the ready acceptance of the Euro in London (maybe the link only works for a short time).

As for prices going up with the Euro, the opposite is true for Germany, but that may be only due to our fortunate exchange rate (1.95..). The catch-the-eye prices of e.g. 1.98 Marks don't go down to the 'correct' 1.01 Euro, they often go down to 0.99.

Since high prices in one €(Euro) country are no longer protected by money conversion losses the expectation is that on the long run prices will go down due to increased competition.

Since I've seen the neologism 'euronate' a couple of times here, may I cite another neologism describing the ready and very quick acceptance of the new currency in Germany:
Europhoria

Wolfgang