For your first question... no. Unless you modified the contribution. Its probably doable, but that falls into the "programming for hire" category if you want me to do it.
However... think about it. Unless you REQUIRE customers to be logged in before they can see any products (which is a setting in Zen, but not very user friendly so I doubt many use it) the system won't know who's from Chicago or not until they log in. So you'd still have people outside of Chicago seeing the item, they just can't order it... is that what you want? But then it has nothing to do with this contrib. See what I mean? If you do require shoppers to be logged in to view your store, then it could work. But I think (my opinion) would be best is forget this mod for that... make a new mod that instead disallows checkout for certain items based on location and have a note in the product page saying "for local customers only" or something like that. Not an easy mod to make, but certainly possible.
2nd question... when it comes to conflicting mods, sorry... its not something I'm interesting in helping to debug. Too many variables. First thing... remove hideCategories and make sure its not just a bug with their mod that exists anyway.
- Steven