According to my native French language consultants (i.e., French friends) you can hear a number of different ways to express "I live in Paris", each with a slightly different meaning:
J'habite Paris. -- I am a citizen of Paris.
J'habite à Paris. -- I live in Paris. (A general statement)
J'habite dans Paris. -- I live right in Paris (probably somewhere near the center)
J'habite sur Paris. -- I live by Paris (in the greater urban area but not right in Paris)
