Where you go is where you work?

I think that is only case because you get comfortable when you are in school with the surroundings, and you are likely to be networking in your community when you are in clinicals. Also, some employers prefer that their employees be from the area because they are likely to stay longer. BUT that is probably not going to be a deciding factor or anything. I do not think not going to school in the area is going to hurt your job application. It most certainly can be done. People move all the time and get jobs so I wouldn't stress over it.

You are way over stressing. Of course nurses move all the time! A nurse is a nurse, an acute care hospital is an acute care hospital, med/surg is med/surg. I am intentionally oversimplifying it but I hope you get my point

The city you go to school is by no means the city you will be stuck working in as a new grad. Especially in CA, where work as a new grad can be hard to find, you take what you can get where you can get it

Typically where you work is where you had clinicals - you know the hospital, area etc. That being said - I work at a place I never did a clinical in and will soon work for a place over an hour from me. So it just depends where your experience and interviewing takes you :)

Not in our situation... the hospital we're in right now only hires BSN's and we're an ADN school

Well, yes, but only if you live in an area where a) jobs are available, b) your school's reputation is decent with the hospital in question, and c) the hospital is interested in your degree. The hospital I work at has its own nursing school, but it appears many of these grads go back to their homes to get jobs. Conversely, we have many new hires from other local schools and out of state.