Phnom Penh is divided into districts. A majority of expats live in BKK 1, 2 or 3, Russian Market, or by the Riverside. BKK 1 and 2 tend to be more expensive with restaurants, bars, and shops geared toward expats. BKK 3 (near the Tuol Sleng Genocide Museum) and the Russian Market have a good blend of western and local amenities.
The Riverside area tends to be crowded with tourists and can feel seedy due to the lady bars and nightclubs in the area. However, it is close to many restaurants, shops, and attractive tourist sites.
Another area of the city growing in popularity with expats is Tuol Kork, located 20-30 minutes from downtown. Phnom Penh is expanding outward, and the further outside the city center you go, the lower your cost of living in Cambodia is going to be.