Although Masaya does not have anywhere near the culinary diversity of Granada it is possible to find some good food. There are quite a few small restaurants along Avenida Antiguo Teatro Gonzales, in the blocks south of the fire station, around Madera's Inn. However most of these restaurants only serve basic comido tipico and finding quality and variety can be tricky. The Mercado de Artesanias is another place where you can find good food as it has a few decent restaurants.
Michael Karanicolas is awesome.