I live in Chapel Hill currently, and I grew up in Durham, so I hope I can help!
You’ve gotten some good advice so far:
Raleigh/Garner/Cary/Holly Springs has cheap housing, but you will have to drive EVERYWHERE. Traffic getting into and out of Raleigh can be difficult at rush hour. There are lots of fun places to go (Museums, parks, stores, restaurants) but they are spread out and do have that feel that they went up quickly as opposed to being planned and designed.
Durham – the downtown area is experiencing a revitalization, which is great: I remember when the only thing down there was a bank building, railroad tracks, abandoned warehouses, and homeless people. (They still have all of them, though.) Like people said, the schools aren’t the best in the downtown area. If you get into Southwest Durham, where I grew up, the schools are just a little better. I grew up in SW Durham and never had any complaints about it. It’s been built up some since I grew up (the days of exploring the forested land behind our neighborhood are no more as there is a subdivision there now) – but SW Durham is safe. Durham still has its pockets of not-nice areas to be careful of. (Though I walked to high school for 4 years.) In Durham you’ll also have to drive everywhere, but it would be a good compromise between Raleigh and Chapel Hill in terms of almost everything – housing, cost of living, convenience.
Chapel Hill – there is where I live now, and it’s my favorite place. We are renting a 2 BR 1.5 BA townhome for $825/month, water included. It’s VERY possible to find affordable places to rent or buy in Chapel Hill, you just have to do a little looking. We live in the same neighborhood as my parents who own a 2 BR 2.5 BA townhome that they would rent for about $1200/month (they did a lot of updating and have a sunroom whereas we don’t.)
What I didn’t see mentioned in anybody else’s post is that Orange County (Chapel Hill, Carrboro, and a few other places) have a free bus service. This was a HUGE perk for me when I wasn’t working, as I was able to get anywhere I wanted to go for free. We live within walking distance to Trader Joe’s, Whole Foods, Harris Teeter, Food Lion, A Southern Season, several outdoor stores, several restaurants, doctor’s offices, a greek market, you name it. A short (10 minute) bus ride takes me to the library, downtown Franklin Street. 15 minutes gets me to Carrboro, UNC Campus and the hospital, or locations further out.
Carrboro might be worth researching as well – it’s an up-and-coming place with decent housing still available and convenient to Chapel Hill. Same for Hillsboro, though it’s a bit further out. (Carrboro begins where Franklin Street ends in Chapel Hill.)
Honestly whatever you decide I think you will like the area. I’d definitely come for a visit and see which area resonates with you best. I have good friends who swear by Raleigh and would never live in Durham. I have friends who love Carrboro and Chapel Hill and couldn’t stand the more crowded atmosphere of Raleigh. I have Durham friends who think that the downtown vibe can’t be rivaled anywhere else. So it’s all personal preference! 🙂 But I think you’ll like the area. I keep leaving and keep coming back – nowhere compares to it. You get all the perks of a big city (the Arts and Theater/Musicals/Plays/Dance companies/Museums, good restaurants – world-class even -) and all the perks of a small town (friendly people, low-cost housing, little traffic (except for a few trouble spots), lots of trees and natural areas, quiet areas)