The main airlines serving Cyprus are Cyprus Airways, Olympic Airlines, British Airways, Lufthansa, and Aegean Airlines. You could also check Alitalia , but it looks like they won't let you check flight prices online between Italy and Cyprus for some reason (just tried it). There are a few other airlines that serve Cyprus, but I don't think they would be flying to Milan - that's just an educated guess though.

We lived in Cyprus for sixth months and I always checked Expedia, Sidestep, etc. for our sidetrips and it seemed as though the prices were close (maybe a little bit more) than the prices that the Cyprus travel agent was able to find. Since we booked all our flights while we were in Cyprus, I'm not sure of the price savings from booking within Europe, but I doubt it would be that much if any. The reason I say this is that only a limited number of airlines fly into Cyprus (especially in non summer months) not leaving much in the way of discounted fares. While living there we couldn't get off the island for less than $200 and those were short flights to Jordan, Athens, etc. However, if you just want to play the Cyprus trip by ear, you don't have to worry about purchasing the ticket until you are in Italy. Due to work schedules, we generally could not plan out our flights purchases more than a few days in an advance and the flight prices were never more than $25 - $50 more than if we would have purchased flights two months in advance.

Just to give you an idea on prices, you probably will not find any flights cheaper than $350 between Italy and Cyprus. Additionally, the airport in Paphos is rather small, so you might want to consider flying into Larnaca (about an hour and a half away) which would provide you a wider array of flight options.

Let me know if you have any additional questions. Happy Travels!