I agree with the OP who feels "screwed".
Yes, in many countries the hotel will use an a conversion rate slightly higher than normal... but 15%+ higher is unreasonable. Why cant they increase their prices in US$ and use the normal exchange rate? Or since the real price is much closer to euros, why dont they give the rates in euros? The current practice is like "here's a price we'll quote you online but when you check out we reserve the right to add an unpredictable amount to the bill".
For people who book online who have no idea about this, the practice is deceptive bordering on fraud.
Their hiding behind the fact the quote is given in one currency, and local laws dictate that they much bill in another currency. If people had the option to pay in US$ in cash, you would see this practice disappear instantly.
I think the OP should fight. For a small local operator to do this is not unexpected. For starwood to not only allow it but to actually aid in it (since the original booking is made through their site) is unforgivable.