Ooo, a town name that's adorable *and* has a literary connection -- I think that this may be just what I was looking for. Thank you, GreatBrain (your username is apt!).
Hmm maybe Knothole like from Sonic? It's the first thing to come in mind or maybe Niconza (which I found by googling things about squirrels which led to an article about a squirrel village http://www.nmanchesterhistory.org/more-niconza.html) Good luck on finding a good name!