Paracho, the small city I mentioned, is in the sate of Michoacan.
http://en.wikipedia.org/wiki/Paracho
Dangerous, as anywhere else in Mexico right now but don't stray off the beaten path and you should be alright. Michoacan is one of my favorite places here and I travel to the capital (city of Morelia) often.
Paracho, the guitar city has grown since I first visited and is certainly a tourist stop but if you take your time, you can still find the small, one or two craftsmen shops, hidden between the larger factories.
http://www.hechoenparacho.com/deletedscenes.html
I bought a flamenco guitar in Paracho about 10 years ago. It was $320. I think I got a deal, as it's a very good guitar. Sorry to hear about the crime situation as most of that part of Mexico was very safe 10 years ago.