To many this may seem simple, but in reality there are many different factors involved in answering this question.
The object of the mitzvah is “persumai neisa” or publicizing the miracle. In the times of the gemorah everybody lit outside. The menorah must be lit in a place where it is noticeable who has lit it. People lit at the entrance to their homes, or at the entrance to their courtyards in front of their homes. They also must be lit at a level that the eye can see. If the candles are too high, nobody will notice them, and therefore not fulfill the mitzvah.
At some point in history, it became dangerous to light outside. The gemorah says that in this situation the candle must be lit inside. Therefore, the “persumai neisa” is for the people in the house (instead of the passerby’s outside). The candles were lit in the main room of the house.
Today, in most societies, there is no danger to light outside. In Eretz Yisroel, according to most opinions, the minhag has reverted back to lighting outside. In chutz l’aretz, the minhag never changed back. People still light inside. It would seem then that the best place to light is in the central area of the house. Rav Moshe Feinstein Zt”l says that even though the “persumai neisa” is for the people in the house, it is preferable to light by a window where even more people will be able to see, thereby further glorifying the miracle that hashem made for us.
From:Jerusalem – Meir Yashiva
Rabbi Tzvi Aryeh Hyman