There are actually several developers in the midwest. Before being bought by Microsoft, Bungie was based (and founded) in Chicago. Midway is based out of Chicago. Volition (Descent, Red Faction I & II, Saint's Row) is based out of Champaign, Illinois... etc.

Better latency is often more important than better bandwidth. With 300ms latency on my (and everyone else's) modem, the net is slow as hell with or without good bandwidth.