I think the various positions on Lolita and Nabokov have been explained, but I'm going to add a few comments.
Since this isn't the Olympics (where some of the citizenship machinations are clearly contrary to the spirit of the games), I think we should embrace the squishiness. There are four determining factors that I see: place of birth, citizenship, language, and setting. After noting all of those, I think gut reaction serves better than hard and fast rules, which would rule out too many highly worthy works. Your gut might differ from someone else's digestive processes, but I still think it works best.
I also think that for a category whose purpose was to broaden horizons, including the US and the UK was always problematic. Again a situation with no perfect solution and I understand the decision that having them was better than holes on the map. I hope when it's the UK/Ireland's turn that Ireland (or at least Scotland or Wales) gets the nod and I'll nominate a couple of Canadian works this time. And who knows? Mitt Romney has $25,000 in fireworks sitting in a warehouse in New Hampshire. But if we are to have a US work in this categry, I'd much rather a Lolita than a garden-variety book club tome.
Finally, there's a strike while the iron is hot aspect. With all the current interest and discussion of Lolita, it seems a shame not to act on it now. I think we were lucky that the category for the Lit Club this month will allow it to be nominated, and it's probably a better fit at the Lit Club than the main club.