We have several friends and family who live in Paphos and although we haven't stayed there long enough to get a feel for household bills etc. it probably works out at about the same. I think Nicosia has an entirely different character and a wider spectrum of neighborhoods from the swanky 'embassy districts' with its very expensive hotels and restuarants, to the immigrant quater of the old city where parts still resemble a shanty town (although there has been a lot of renovations and even the cheap accomodation has been given a face lift). But it is there that you'll find unliscenced bars and restuarants that are extremely cheap (but may not have toilets!) Somewhere in the middle are the decent and fairly priced places. But I would still caution that it is difficult for a younger family to make ends meet - even if they do stick to the average priced places and are careful, the weight of utility bills, education fees, babysitting services, health care, petrol, food, unexpected 'red-tape' fees and fines, telephone and TV, transport to keep in touch with Blighty is sometimes too much when the average salary will barely cover the rent/mortgage and the weekly shopping.
Of course it is still possible to make a decent go of it if you have some support network, two half decent jobs, or private income from rents etc., but I wouldn't want to give the false impression that Cyprus is way cheaper than living in the UK - the generally lower salaries even things up considerably no matter which part of the island you decide to settle in (although what has been stated in previous posts that Nicosia and Limassol work out more expensive on rents is the case)...
