It's true, that "Не по хорошу мил, а по милу хорош" IS a saying which is now almost forgotten in Russia, but it seems a good equivalent for "the beauty is in the eyes of the beholder". The meaning of the Russian saying is that there is no direct relation between real merits of a person, and what you feel for him/her, i.e. if like someone then he/she seems good enough for you (in your eyes) precisely because you like him/her, not because of any particular merits of that person. "мил" in that saying does not mean 'nice' exactly but is rather associated with liking (with seeming nice to someone). This word however still retains its old meaning in idioms such as:
"Насильно мил не будешь"~ "you can't force someone to like/love you".
"Без тебя мне свет не мил" ~ "I hate it without you" (i.e. can't live without you).