So, yeah, traffic's not as bad as LA, but, um, it's pretty bad. Just so ya know.
+1 on taking the bus. Even though the people from LA I know think that's crazy, lots of people do it here; your company would probably pay for it, too.
First, rule out anything east of Lake Washington and/or anything requiring driving on 405, and the 520 bridge. For cheap-ish, you could try West Seattle, but it's somewhat like an island and one of the main routes that conveys traffic from it is being replaced (big tunnel), so it could get crazy soon.
Rule out Everett (to the north). I can't understand how anyone would want to do that commute every day...
North of town is probably nicest; you might find affordable digs in Greenwood, Crown Hill, Wedgwood, maybe Ballard (it's getting spendy). Depends on what you're looking for and who you want to live around, I guess. If you live in Ballard, Phinney, Greenwood, or even Shoreline (first town north of Seattle), then your commute to the water could be fairly straightforward (down 15th Ave NW). South of town, there are a number of nice places to live, but they tend to be patchworks of decent streets contrasting with other patches that are a bit rough.
If you ride a bicycle, the N-S route from Ballard-ish is fantastic: right on the water (google Myrtle Edwards Park or look at the City's website for bicycling).
If you want to get away from the city, you could commute by ferry and live over on Bainbridge Island, but I think it'd be tough to get to car-related stuff.
You could potentially live in Tacoma and take the train to Seattle, but I doubt you'd dig that, and while I like Tacoma, some people really don't like Tacoma.
Renton, to the south, isn't too spendy, but you'd want to look into the commute -- I think it's tough (usually includes 405, IIRC).
Maybe you've heard about the weather. Here's how it works: from July 5th through October (sometimes into November a bit), the weather is epic: not much rain, dry air, not too hot (though we periodically get heat waves, usually lasting only a couple days). Then you enter what my buddy calls "the long, dark tunnel": dark, wet days, low cloud ceiling, gray. Suckers use umbrellas. Smart people escape mid-winter to go looking for sunshine.