The idea is to find a low equitorial orbit that is below the van Allen belts but high enough that the settlement will not enter the Earth's atmosphere for a long time (say, 100 years) even if it is abandonded.
The van Allen belts are radiation belts around the Earth. One should avoid living in them because radiation levels are elevated. They reach the surface of Earth at the poles and are furthest surface at the equator. It's not clear exactly where they start, and this probably moves around. One of the first sub-tasks is to get good data on the location of the van Allen belts and how intense the radiation is. This will place an upper bound on the orbit you choose.
All space settlements will need radiation protection. We are primarily concerned with cosmic rays, which are omni-directional and are blocked by the atmosphere and the van Allen belts. Protons from solar flars can be handled by going into a shelter as these flares do not last long.
Ideally, one would like to have about the same protection from cosmic rays as on Earth. Being below the van Allen belts will help, but the protection of the atmosphere must also be considered. At sea level, the atmosphere is the equivelent of 10 tons/m^s (check this figure). There is some human inhabitants at up to 16,000 ft (check this) where the atmosphere above is only 55% (check this figure) of that at sea level, so 5 tons/m^2 may be sufficient. Note that the closer one is to Earth the more of the sky is blocked by the Earth which provides good radiation protection for cosmic rays. Note that the Earth blocks about 50% of the rays for anyone on the surface. Of course, the Earth itself is a source of radiation, altough this varies a great deal depending on where you are.
Atmospheric drag will cause any satellite in LEO to eventually enter the atmosphere. As a free-space settlement may weigh millions of tons, this cannot be allowed to happen. Thus, we want a high orbit, and we want to make sure the settlement will not enter the atmosphere for a very long time (say, 100 years) even if it is abandoned. Calculating the atmospheric drag requires knowing the total mass of the system and the cross-sectional area of the settlement in the orbital direction. This depends on the exact design of the system. Use Kalpana One (http://alglobus.net/NASAwork/papers/2007KalpanaOne.pdf) as the reference design. Assuming power is generated by solar power satellites that beam energy to body mounted receivers, and ignoring the thermal rejection system, the mass per m^2 must be several times the shielding mass. It should be fairly easy to get a lower bound on the mass per m^2 of cross section. The bound probably doesn't have to be very tight.
The STK (Satellite Tool Kit) can simulate atmospheric drag. One can get the STK for free, but usually only if you are working for a major US aerospace organization. If you can't get it free, then you will have to either find some other software that does the job, or find data on atmospheric density as a funciton of altitude and do the calculations yourself.
That's all for now!