Does everyone studying at IIT (BHU), Varanasi feel sad about living in an old city with very bad traffic, bad roads, no great cinema hall, no good place to hang out, and a lack of good looking girls?

No, I don't agree with you. My friend was a student at IIT BHU and still reminisces about her time spent in Varanasi. Although she is staying in New Delhi currently a part of Varanasi still stays with her she misses the pollution-free air of Varanasi and the scenic moments she spent by the river. 

Her current life in Delhi is very urban and fast-paced and she misses the tranquility of Varanasi. So it is untrue that you will feel bad about staying in an old city with no good places to hang out. Every city offers a unique experience and so does IIT BHU. You need to come prepared for all this.