The Shulhan Aruch (Orah Haim 671:5) says that the Menora should be placed on the outside of the entrance of one’s home which faces the public domain. This is based on the Gemara’s (Shabbat 21b) explanation that placing the Menora in such a location allows outsiders to see it and therefore, the there is greater publicizing of the miracle of Hanukka. Indeed this is the common practice nowadays in Israel. The Shulhan Aruch continues and says that in times of danger, such as those which were common in the days of the Gemara, it is sufficient to place the Menora indoors on one’s table.
The salient question is whether or not those living in the diaspora are considered to be in danger and would therefore be exempt from placing the Menora at the entrance. Rabbi Yehoshua Ehrenberg (Shu”t Dvar Yehoshua vol. 1, § 40) writes that once our Sages established that there is a special dispensation for those in danger, this leniency still applies regardless of whether danger is imminent or not, even in Israel. Rav Ovadia agreed with this opinion but in recent years advocated that at a minimum, the Menora should be placed by a window.Therefore, according to this opinion one would be able to light indoors. Other rabbis say that if there is no danger, then the Halacha would revert to the original enactment of lighting at one’s entrance. It appears that the common practice nowadays is to light indoors and if the neighborhood is safe, then people typically place the Menora by a window so as to publicize the miracle. Evidently, there are other considerations as well, such a weather conditions and the risk of the Menora being stolen.
Summary: Although strictly speaking, the Menora should be placed by the entrance, the common practice in the diaspora is to place it indoors, near a window.