My wife and I live at the top of Magnolia Hill, which is the hill immediately northwest of downtown, about five minutes from downtown. We love it up here. The neighborhood is quiet and the view is stunning; we're right across from a park, we can see boats in the Ballard Locks out one window and the city out another. In the mornings you can smell the ocean, and the sunrises are spectacular (when the sun comes up -- not for over a month, now

) Traffic isn't that bad for us, but then my wife works a mile away (on Queen Anne Hill), and I work an early shift in Issaquah so I hit very little traffic. You can get into a 1-bedroom apartment/condo over here for $700 a month or about $150K if you're looking to buy. Houses in this neighborhood run $500K and up.
I also like Shoreline, for the same reasons as Magnolia (minus the short commute to downtown), and it's cheaper. Edmonds is cute in that small-town-by-the-sea way, and not too pricey -- at least, not for the Northwest.
Bad places to live: South Seattle, the Rainier Valley (crime) ; Lynnwood or anywhere north of Lynnwood (generic strip-mall-ville all the way through Everett, kinda defeats the purpose of living in Seattle, IMO.)
The only thing I don't like about living up here is living in a condo and not having a garage.
Professional driver on closed course. Your mileage may vary.