Does where you live hurt your job search?
It can. The smaller the population of the place you live, the fewer job prospects there will be. Your options are limited.
The current economic environment is making the situation worse. When the best jobs you're qualified for are going to require a move, companies might consider good candidates "geographically undesirable." When the economy is robust, companies will readily pick up the cost of moving for great candidates. Now, if two candidates are not too far apart skills-wise for a position, the candidate whose move will be easier/less costly will have the edge.
I'm in line for a great job, but it's 2,100 miles away. I've had good interaction with these people, but I know that the logistics are hurting me.
What do you do in these cases? For a handful of jobs that were especially appealing, I've offered to pick up my own moving expenses. That is going to be (conservatively) at least $1,000, and could be as much as $3,500. I've had employers pick up this tab in the past, but right now not many will. Some even say on job listings that they won't consider candidates who are not in the immediate vicinity of the opportunity.
Regardless, I'm trying to build savings so that we can have enough money to move wherever we want to independent of an employer.