Many a Commuting pilot has used the Crew room as a hotel.
I even found the Base captain sleeping in the office one morning , before an early duty.
Some years ago mind you.

What's stopping the captain of the flight crew from booking a hotel and taking his crew along with him for a proper rest? Not the best solution, I know, but just curious?

Not even the captain alone...

35 seconds on Booking dot com.. similar deals on other sites, tripadvisor etc and I can find 193 properties within ten kms of the airport in Malaga, beds in hostels starting from 12 euros, hotel rooms starting from 35 euros. If you know you need to overnight, grow up, find it yourself and get back to the airport in time for your flight home. Then invoice.

Just to quash any other rumours here... the crew did not operted the next day.

If the crew had a layover - planned or unplanned - in Malaga, it was Ryanair's duty to provide them with suitable accommodation. Unless they got it, they cannot be considered "rested" for the return flight.

Unfortunately it is a design error of EU aviation rules, that they apply to everyone in principle but how they are actually applied is decided by national authorities which may or may not have an agenda of their own, rather than a common European aviation authority which could enforce a single way of reading those rules.

I get that it is the airlines responsibility. I personally would have elected a hostel or hotel over the crew room and then argued the toss after.

I also want to make it known that I understand and backthe crew in choosing to bring this to public attention

What if the crew picked up their stuff, found themselves a hotel room, got proper rest on a proper bed.... but did all this from their own pocket, are they considered "rested" and can they then work on the return flight?

If you start down that route you are quickly expected to do that for every layover. Cheap upfront financing for FR. And invoicing after the fact is a slow process there, where you are likely to only see maybe halve the money again due to some limit rule they will drag out. Crew fought hard for company supplied overnighting but there will be some run-in problems until control is up to scratch with a full sized for all eventualitiest list of pre-agreed and contracted suppliers around every airport.

This is the point where self respect ought kick in.
Recently in Sydney, a rather large thunderstorm stranded many thousands of passengers.

The crews including pilots, totaling some 60 odd staff were told the same crap regarding hotel 'availability'
Of course it is true that there were no hotels that night at $35 per night, there were hotels.
Any pilot, particularly a Captain, knows he or she would find it incredibly difficult to defend him or herself the next day were an incident to occur. Sleeping in a terminal is not "accommodation of a suitable standard". Yet sleep in the terminal they did and operate the next day.

1. Turn on ipad
2. Book room
3. Proceed to hotel and sleep.
4. Turn phone on the next day when sufficient rest obtained.
5. Send invoice to company.
6. Passenger home.

They did get a nice group email thanking them for their service from their 'manager' who reports suggest enjoyed the storm from the comfort of her own bed.

As opposed to the more immediate danger of fatigued crew doing their duties? Would it not be more evidence of FR's shortcomings if captains were able to produce memos or emails of "no hotels available" and then receipts of him booking accomodations for his crew for that same night? Even if FR would eventually only reimburse 50% or even 0% of the cost, would these captains not be able to use this situation to their advantage within FR or even when applying to another airline?

That is a pertinent point.
The regulatory environment provides all the protection from an employer, even one as adversarial as O'Leary with an IR posture the envy of most airline management.
Using the regulatory protection available requires:

1. Knowledge of the regulations
2. When to apply them necessitating the PIC have cojones (non-gender specific)

In the modern day adversarial airline IR model, many pilots adhere to the company documents which whilst oftentimes incorporate the statute, gloss over things like strict liability and instead offer 'company pleasing' alternatives.
Sadly with big mortgages and little knowledge of the statutory protection, many pilots surrender point two when signing on.

Oops. That camera looks very sneaky though, are they being filmed without their knowledge? Will certainly be checking my (non RYR) crew room later this evening!

its common practice, loads of cash in those crew rooms, never bothered me when i was there

It might have been scripted, but their action still has a meaning: they were left there with nobody reachable.

Sorry Banana Joe, just wondering, how do you know that nobody was reachable? thanks

Classis case of 'you pay peanuts...'
Cunning plan, top notch execution.

This isn't unusual - speaking as one expected to do this for every night stop. I keep the receipts then claim back expenses necessarily spent on behalf of the company.

Seems the point here is how much effort the company in question will put in on behalf of their employees' well being.