Receptional_Andy - 7:19 pm on Jun 2, 2010 (gmt 0)
It's an unfortunate fact that the internet is still not ideal for reaching very local audiences. Perhaps this is because when people are online, they are part of a different type of "geography" defined more by the sites they visit, than a physical location.
In any case, if it's keyword traffic from search engines you want, I would suggest you cover the most popular keywords and modify them with the various relevant locations. If the locations are popular enough, then you may want a hierarchy:
widgets (in) country
widgets (in) county
widgets (in) town
You may also need to cover [country widgets], but that is usually straightforward to target alongside the above patterns.
It may be that the target audience is too small for SEO to be a genuinely worthwhile undertaking, particularly if targeting a very small area. If you're not confident the number of searches warrant the investment in SEO, then a well-crafted Adwords campaign can give you real data without undue cost.