You raise some interesting questions, and I don’t pretend to have the definitive answers, although I do (of course) have opinions.
Let me start with three examples, two from YA books, and one from a movie. Cory Doctorow’s book Little Brother (Tor, 2008) takes place in San Francisco. I remember that when I read it when it came out, there were a few things that struck me as inaccurate, but not to the point where it bothered me much. I just flipped through it again and came up with some examples.
The first sentence of the book begins, “I’m a senior at Cesar Chavez High in San Francisco’s sunny Mission district . . .” Okay, there’s no Cesar Chavez High in the San Francisco Unified School District, but if there was one, it would probably be in the Mission District (which is indeed sunny, unlike many parts of San Francisco). So that didn’t bother me at all, because it only makes sense to make up a school, especially when you’re writing speculative fiction.
The first paragraph in Chapter 2 includes the sentence, “His dad taught at the University of California at Berkeley, which meant he’d get free tuition when he went.” Um, no. Forgetting the fact that a San Francisco boy would refer to the university as either Cal or Berkeley, it’s just not true that children of faculty get tuition remission. I doubted it when I read the sentence (because it’s not really a public university thing; happens more at private colleges), but I did some research, and it is not listed as a benefit for UC faculty or staff. That bothered me a little, because there’s not really much point in putting that information there. It doesn’t have anything to do with the plot, and Darryl, the kid in question, could just have easily have wanted to go to Berkeley because he’d hung around the place his whole life.
As far as I can tell with a quick skim, the geography of San Francisco is mostly all right, although Doctorow does refer to the Nikko Hotel (at Mason & O’Farrell) as being in the Tenderloin. I think Union Square merchants might be a little annoyed at hearing that intersection being referred to as the Tenderloin, but I’ll leave that one to you, since you once lived near there.
But there were a few other things: he consistently refers to BART as “the BART” and to a freeway as “the 101.” And I couldn’t find it when I was flipping through the book yesterday, but I seem to recall that there was an instance in which a character using public transportation makes it from Berkeley to either San Francisco or to somewhere on the Peninsula in about 45 minutes, despite the fact that both the Bay Bridge and the BART tunnel have been destroyed. Now that’s a good trick (although no trickier than all those scenes in the TV show 24, where people made it across Los Angeles in 15 minutes).
To me, those things show that the author never lived in San Francisco. (For our readers: referring to freeways as “the 5,” “the 405,” etc., is a Southern California thing. Northern Californians would never do it.) But it doesn’t make the book less credible to me, mainly because I trust Doctorow on the main points of the book, which have to do with computers, hacking, and intellectual freedom. So I was willing to give all that other stuff a pass. Although, frankly, if I were evaluating the book for an award, it might come into my consideration.
The second book is an older one, but one that for some reason still rankles with me: Janet Tashjian’s Fault Line (Henry Holt, 2003). This book got lots of favorable reviews, mainly because of the way it deals with its main subject matter: an abusive relationship. But I could never get over several major inaccuracies. The main character, Becky has a part-time job giving “movie tours” of San Francisco: she shows tourists around various spots that appear in movies. So she’s listing some of the places she goes, and includes, “Barbra Streisand’s apartment from What’s Up, Doc?” Well, What’s Up, Doc? does indeed take place in San Francisco, and Barbra Streisand is indeed in the movie, but the whole POINT of the movie is that she doesn’t have any place to live!! She’s following Ryan O’Neal around so she can stay in his hotel room! She’s sleeping up in the unfinished penthouse of the same hotel! She has no apartment! Later in the book, someone suggests to Becky that she add some location to her tour from American Graffiti. Now that’s a movie that doesn’t even have any scenes that take place in San Francisco! American Graffiti 2 has some scenes in San Francisco (when Harrison Ford is a cop and MacKenzie Phillips is a flower child in the Haight) but not the original.
And what’s the point of these inaccuracies? Both could have been easily fixed (by watching the movies in question!). She could have used any number of scenes from What’s Up, Doc?–the hotel, or the famous plate-glass-at-the-bottom-of-a-hill scene, or Chinatown, or the Bay, where the car goes into the water. Why pick something that didn’t happen? And the same with American Graffiti. Why not use the example I just gave, from the sequel? And to top it off, she has a character refer to UCLA as being “800 miles away” from San Francisco. That’s actually one I could be persuaded to forgive, if maybe the character in question was using hyperbole, upset about the notion of the boyfriend/girlfriend (can’t remember which) moving so far away. But it’s still wrong, and on top of the other things, I wasn’t feeling charitable.
For me, these things made me mistrust the author. Why should I believe anything she says about abuse if she can’t get these little details right?
My final example is from a movie: The Graduate. In a famous scene in that movie, Benjamin jumps in his car and drives across the Bay Bridge to Berkeley to see Elaine. Only he’s driving on the top deck of the bridge, and the top deck goes east to west (Berkeley to San Francisco), not west to east. I totally understand the director’s choice to do this. The lower deck of the bridge is ugly and dark, and if you’re going to film a dramatic scene of a guy in a red convertible driving across the bridge to stop the girl he loves from being with someone else, you are totally going to film it on the upper deck, where you can see the car and the driver and the whole Bay. So I completely forgive Mike Nichols for that inaccuracy, because it makes sense. (And I know that you know your Dad’s story about watching The Graduate in a theater in Berkeley, and everyone shouting out, “You’re going the wrong way!!”)
So my answer is that no, I don’t think anything goes, as long as it’s fiction. I think fiction authors deserve some leeway, but I think it is best when their inaccuracies serve the story in some way, or at least don’t seriously distract from it. In the example you gave from One Crazy Summer, Nina says that the author felt that the “mistake” played such a big part in the main character’s development that it had to stay in. I can respect that, just as I can respect Mike Nichols’ decision to film the upper deck of the bridge.