Michigan would be a great setting. If I recall correctly, back in the early days of Fallout fandom, the Canadian border states and the southwest were two of the most popular settings for fanfic and speculation. In an old-style Fallout game, you could easily use most if not all of the state as the map; for a more pared-down modern outing, I'd say it'd probably be best to go with the Detroit area. Historically, it's always been a multifaceted place, and there'd be plenty to see and do. Between the war being on and the US holding a near-monopoly on the world's remaining resources, the Motor City industrial machine would have been at the height of production, and there probably would have been a beefed-up military presence in the area thanks to occupied Canada being a stone's throw away. On top of that, you've got the nearby lakes as a source of mutant nasties or other surprises (I'd go the Fallout 1/2 route and make the waters largely impassible rather than trying to add too much of an aquatic element to gameplay), docks, shipyards, bridges, and an elevated rail system for backdrops and setpieces, a rich/poor dynamic (even in the city's heyday) which could make life in the aftermath of the bombs quite interesting... I'd even go as far as to say it'd be more "Van Buren" than "Fallout 3" to put a secret aquatic research lab somewhere beneath one of the lakes.
The only thing that would concern me would be the industrial might of the city, and how the devs might choose to use that. They'd be walking a very fine line-- the city was both a key war production center and the premiere auto manufacturer in the country, so they could technically shoehorn nearly anything they wanted in there, from a robot army to the last functional Road Warrior gangs in the country. The odds of getting something like that wrong in the Fallout world are a lot better than getting it right, though.
