Translation:We had lived together since the eighties.
But not in this context, though... "We had lived together from the eighties"?
It does sometimes! If it is being used transitively (ie with a direct object) then you use avere, is with all transitive verbs. If being used intransitively, like in this case and most others, you use essere.
An example of the transitive case is "Lui ha vissuto una vita tranquilla"
Most of the time it will be the intransitive case though, such as vivere insieme, vivere a quella città, vivere fino a cento anni, etc.
you are right when you say that in the transitive case you use the auxiliary "avere", but in the intransitive case you may use both "avere" or "essere".
In addition, even though the form with "essere" is also allowed, the most used form is that with "avere", so:
"avevamo vissuto insieme" is much better than "eravamo vissuti insieme" "avevamo vissuto in quella città" is much better than "eravamo vissuti in quella città"
and so on