For the purposes of how they figured all of this out, it is a matter of where they're from originally. Several of the states (like Alaska, etc) have "best band"s that are based elsewhere. They'd probably cast The Hold Steady as a MN band.
Vaz, as I mentioned earlier, formed their previous band in Fargo, relocated to Minneapolis, broke up, formed the new band (Vaz) in Minneapolis and then relocated to Brooklyn a few years later. They have never been based out of ND as a band.
The important thing is that people in their hometowns still maintain strong ties/levels of interest in the band. Folks in Fargo DO follow Vaz (probably more than folks in Brooklyn do). Just like how people in MN never let go of Dylan and people in Arkansas are still proud of the fact Cash came from their state.
I didn't know Biafra was from Colorado. I think it's cool, I learned something new today. But I bet EVERYONE in Colorado (who'd be inclined to care) knows he's one of theirs and maybe takes some pride in that, even if they don't always want to admit it.