I go there regularly for the walking and have a good knowledge of the road network from a car passenger's perspective, but can't say I'd be tempted to cycle there. For one thing, there are only a couple of stretches of level road on the whole island (Paul de Serra & Madalena do Mar); and although a heavy spate of road-building in the last few years has hived off most of the traffic on to the largely tunnelled expressways, the older roads that are left are all bends and often severe ups and downs - you'll need legs of steel. On top of that, Madeiran drivers have got far more reckless since their newer, faster roads have opened and make British driving look quite genteel by comparison. You do see more roadies out these days, though.
If you're into MTB-ing you may be better off - there are loads of old, mainly disused tracks up and along the mountainsides and some have even been signposted as cycle loops (Fonte do Bispo, for example, above Prazares).
I don't think you should have any problem camping wild - away from the coast there's plenty of forest and, on the Paul de Serra, grassy pasture - finding somewhere flat enough to put up a tent might be difficult, though! Somewhere like Fanal would be great, as long as you're out of sight of the forestry house. Your only problem is likely to be inquisitive cattle and the ever-present lizards crawling into everything.
What time of year are you going, btw?
Hope that helps - off there myself in a week's time so will report back if anything else suggest itself.
Matthew
