I live in Urbana right now (I just finished my Master's degree at UIUC) and for grad students and families Urbana is a better place to be than Champaign in my opinion. They have better protections for renters - your landlord can't just come into your apartment without 24 hours written notice, for example - and it's a lot quieter than Champaign. Urbana has recycling pickup; Champaign does not, and we have a great farmer's market in Urbana. I pay less than 500 a month and I live in a three-bedroom house with a large backyard in Historic East Urbana with my partner. It is a little far from campus but it is totally bikeable and it's a really pleasant ride, down tree-lined streets without a lot of traffic. Urbana is really bike-friendly. I've had a harder time navigating my bike around in Champaign because it's more urban than Urbana; it has more traffic and people and fewer bike lanes.
The public transportation in Urbana-Champaign is award-winning and phenomenal; they have GPS on all the buses so that you can tell exactly when the bus is going to be at your stop, which is especially handy in the winter. The bus system is pretty far-reaching and two and a half miles away from campus (it's a small town so 2.5 miles is pretty far from campus) I have a bus that goes to the heart of campus that stops a half a block away. As a student, you ride for free with your student ID. The maps on their website aren't the best but if you want a house/apartment a bit further away from campus that is still on a bus route their website is http://www.cumtd.com/.
For housing, take a look at the Tenant Union at http://www.tenantunion.uiuc.edu/. I met with someone in the office when I visited to see if I wanted to come here and she gave my partner and I some really good advice about where we might want to live and why: http://www.tenantunion.uiuc.edu/hb2.html. They also have landlord complaint records so that you can see if the company or person you're thinking of renting from has caused problems with tenants in the past (http://www.tenantunion.uiuc.edu/complai ... ea_lan.htm). This is a really helpful service when you're farther along in the housing process. Their website is sort of 1992 but they're an awesome service for incoming and current students.