Hi Steve,
We have ended up looking for a place closer to Sydney, but I was considering the area up around Gosford at one point (near Terrigal). You can find cheaper places once you are off the coast. There are parts of Gosford that are a little ugly or run down, but there are nice leafy areas to, like North Gosford. Its about a 20 minute drive to Terrigal from there, and you would also be close to the Pacific Highway which is the main road to Sydney.
Erina is closer to Terrigal and has good shopping and transport also. For something a bit more leafy, look at Green Point, or Bateau Bay to the north of Terrigal. Bateau Bay in particular is quite nice, close to a beautiful beach, and only a short drive to Terrigal. When i was looking, there seemed to be some reasonably priced cottages there. There are many more houses than apartments in all these places, but you can find apartments in the more urban areas. The little cottages are about the same price as an apartment.
Domain, one of the big real estate sites is a good place to look at average prices for an area. I've found you can also get a lot of useful information out of the estate agents by just emailing them about a property and sounding interested! They are always happy to answer questions if they think you might come to the auction!
I agree with the others that Stamp Duty and the deposit are significant, and the paperwork is hellish, but i think as long as you educate yourself as much as possible, its no more complicated than anywhere else.
Good luck! I'll let you know if i think of anywhere else around Terrigal