I've always kind of pictured the story as being set in Minnesota, but that's probably because I live here ;) But then there's things like the 1880s segment that indicate it's probably somewhere farther west than that...on the other hand, it still has kind of a Midwestern feel...
And you do have a fair handle on cultural geography, but it's not quite as red-state-blue-state segmented as you think - even in, say, Georgia, there's places like the Atlanta area that are much broader in cultural scope than the state at large, and here in the land of 10,000 lakes (and the only state that didn't vote for Reagan) there's areas that are every bit as insular and close-minded as is stereotypically associated with "red state" territory (I have a coworker who claims to have run up against organized anti-Semitism while living in St. Cloud.)
Blame Hollywood and the New York TV industry - they like to reinforce any stereotype that makes the coastal US look more nuanced and urbane than "flyover country" to the rest of the world. NOT THAT I HAVE ANY OPINIONS ABOUT THAT OR ANYTHING.
(Also, nobody in Minnesota talks like Garrison Keillor unless they're making fun of NPR. Fargo's not so far off, though, especially when it's older folks doing the talking.)
