Hi, I am a Realtor in Massachusetts. I don't know where you got the idea the agent has to be in your town, but most of us work in several towns. Buyers usually have their own agents, and they show them houses wherever they want. Use the agent you feel comfortable with.

I don't ever use one anymore. If you are going to use one, then a friend another town away would be a good idea. It will get posted on the MLS so everyone will see it. Then they will put a lockbox on so all realtors can show it without your realtor being there.

I use craigslist and other local online sites. I don't think I have ever had one go longer than 1 week without getting a contract signed. It helps that I offer owner financing with most of mine. You have to deal with TONS of tire kickers and idiots if you do it that way though.

It depends on the area and the towns. Some towns are more like what we would call neighborhoods here. In some areas people shops several towns, or they want a specific neighborhood or feature.
The way you describe it, people looking in your friend's friend's town would not be looking in yours. In that case, you really should use a local Realtor.
There is also the chance that a local Realtor already has buyers looking for homes like yours in your area, whereas an out-of-town Realtor probably wouldn't.

I'll tell you, my next-door neighbor used a friend, instead of one of the three or four Realtors that farm our neighborhood. (I don't do listings, so I was not involved.) She had it priced crazy and had the owners do some weird improvements. And it sat there for months until the people across the street leased it when their lease was up.

The internet has made "local" irrelevant, unless your town is too far for a comfortable drive to show properties. If someone is looking to relocate to your town, they will probably start on Zillow or Trulia and see what's out there and contact the listing agent for the property.

How far is "the next town"? 5, 10, 150 miles?

The more important issue is can you work with her? Is she the best agent for you or would you be using her just because she is a friend of a friend? Sometimes mixing business with friendship is not a good idea.

What if you aren't getting results with this agent and decide to change? Is your friend going to be mad? Stuff like that is what you need to think about.

I hope I don't confuse this issue, but the key in selecting a listing agent is to make sure that his or her listings appear in the MLS system that is used by the majority of agents in your town. In large cities and nearby suburbs there can be several different MLS systems. Even in small, rural areas there can be multiple MLS systems. As an example, I live in the largest town in my area. Several of the adjacent counties belong to a different MLS system. When I had buyers that wanted to view property in those counties I had to search through my own MLS system and those other systems.

That said, most all listings are online somewhere, but it is more likely to be seen by buyers interested in your town if it appears on the MLS system that covers your town.

I wouldn't worry about the good friend of a good friend status. Do what is best for you and selling your home.