Hi guys,
Im currently an MA student at IU. I actually like living in Bloomington a lot (I moved from a larger city), because its easy to get around and affordable. I have been able to keep myself busy and develop some fun new pastimes here (its a good place to explore your outdoorsy side, or your musical side-- the music scene here is pretty fantastic for a town of this size).
As far as where to live, I would recommend against the on-campus graduate student housing (unless your program is paying for it, which I've heard to happening for one or two people). Its fine, but you can get nicer places, reasonably close to campus, for a better price. I do know of some international students who didn't want to deal with finding a place the first year who lived on campus, and said it was fine, but they all moved off campus by their second year.
In general in terms of nice areas to live (I think this has been mentioned in this thread before), you'll probably fine as long as you avoid the area by the stadium. I really like area the several blocks south of campus, the Bryan Park and Elm Heights area, although its mostly houses, so its better for families (or for having housemates). The Prospect Hill neighborhood just to the west of campus also seems like a nice place to rent a reasonably price house.
A lot of graduate students live east of campus by college mall, or just south of campus (between 3rd and 1st street). Many apartment complexes in these areas cater specifically to graduate students, and refuse to rent to undergraduate. In these types of places, you can pay anywhere from 450-700 dollars for a one bedroom. You can pay less rent if you go in with a roommate for a 2 bedroom type deal.
House owners post on craigslist, although you'll have to sort through the ads from the big apartment complex companies to find them. To find decent apartment complexes that rent to primarily to grads, just do a google search of something like "bloomington, in graduate apartments special," or spend enough time on craigslist.
Hope that helps, and best of luck with your applications!