I had a completely different experience.
I was in Bali last October ... and I found it to be safe and enjoyable. The diving was quite good, and very inexpensive. The people were friendly ... even though we were there when the bombs started falling in Afghanistan, we were not in any way concerned about our safety as Americans. In fact, many folks we met expressed concern about us going home (due to the ongoing anthrax scare), and wanted us to stay with them until it was safe to return to America.
I agree with the comments about Kuta, but on the other hand, why go to the seediest, most touristy place on the island? The only reason to go there is to get to and from the airport. The good diving's on the north side.
We chose a company that lets you create your own customized diving itinerary. Since we were Indonesia for other business, we only had three days to dive, and wanted to do a "sampler" of what the island had to offer. So we chose one day of diving off Menjangen Island on the northwest side of the island, one day in Tulamben on the northeast side, and one day off Padangbai halfway between Tulamben and Kuta.
Menjangen Island requires a boat to get there, but it's basically a shore dive ... you gear up standing waist-deep in the water, swim out about 50 feet over a wall, and drop down to whatever depth you please. We did two great (and deep) dives here, plus snorkeling during our surface interval.
Tulamben is all shore diving. We did three dives here, plus snorkeling during surface intervals.
Padangbai is all diving from a live boat. We did two dives here.
Of those, we liked Tulamben the best ... offering a wall, a WWII shipwreck, and a nice coral garden right off the beach in front of the hotel. We met several folks who vacation there regularly, and never seem to get tired of the diving (for good reason). Visibility when we were there ranged from 60 to 100 feet, and there was plenty to see.
Menjangen Island is a great wall dive, but I couldn't justify diving there more than one or two days without it getting repetitive. But the shallows above the reef is one of he more amazing snorkeling spots I've ever seen ... offering probably better photo opportunities than any of the dive sites.
Padangbai is advanced diving, but for those with the skills it's great diving. Did someone say sharks? You'll see sharks here ... as well as more fish per square foot than I've ever seen before. Due to the confluence of warm and cold currents, you'll also encounter thermoclines that have the water temperature at different depths bouncing between mid-70's and mid-80's. These temperature differences create some interesting diving conditions ... in our case they turned one of our dives into an unplanned drift that put us on the opposite side of an island from our boat. They figured it out eventually, and after about a 25-minute surface interval they came around and plucked us out of the water.
To comment on something else someone said, yes people will try to sell you stuff. But we found "no thank you" to be very effective.
Overall we enjoyed Bali very much. I'm not sure I'd want to be there for three weeks though ... I think it'd get rather repetitive after a while, unless you were on a liveaboard and moving between there and the Lembah Straits or something.
... Bob (Grateful Diver)