The Zune guys explained on their podcast that the reason you can't switch account locations is that the publishers of music/video don't allow Microsoft to sell some content to non-US customers, and changing the account location would make it appear as though Microsoft has allowed non-US customers to buy music/video. Stupid, but that seems to be the reason. I lost all of my Zune account history (20,000 plays, etc.) because I needed to chagne to another account to use my new Windows Phone.
I wish that they would at least give us the nuclear option of being able to delete our Zune accounts and start over. The Terms and Conditions make it quite clear that we can lose all our licensed content at any time, for any reason; so it's not as if we hadn't been warned.
I'm stuck with a Zune account, which I've never used, and which has the wrong country, tied to my primary Windows Live ID. Unless I can have the Zune account deleted, it's simply not worth my getting a Windows Phone 7, because the access to services and apps won't work.