I think sending out a personal letter is fine. A phone call might be better. Letters are easily thrown away and forgotten about. If you send a letter, keep it brief with a notice that you'll be calling in the next few days. Chances are, the site owner doesn' t know he has broken links or a bad page. This gives you the opportunity of doing the owner a favor. (Point it out, recommendations on fixing it; perhaps fixing it free of charge if it isn't too detailed. You'll get remembered for it. You'll get referred, if anyone shows any interest in the site and you'll get the opportunity to upsell him on a redesing, him more amiable and trusting of you because of the favor you did.) Crazy.. but that's how sales works! You could accomplish the same bit in a phone call, if you didn't want to waste time with the letter- or even drop by his bakery, get a cupcake, and chat them up over it. (Hey, I noticed on your site.. blah blah blah.. you know I'm a webdesigner - I can help you out with that.)
I used to work for a webdesign company. (In sales. :O Not design, though I often my 2cents in where it was concerned.) I've used all of the above  Don't make things harder than they have to be when you're approaching people
Something else to keep in mind is that word of mouth will carry you farther in a small town than any paid advertising you might do. Small favors.  And one last thing- this is for anywhere.. small town or not! Don't bash the competition. As difficult as it may be, you should never put down your competition, even when making corrections to sites they've screwed over. Just play up your strengths and abilities to sell yourself-- it will appear more professional and TRUSTWORTHY.
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