'Muslim World'.. it's a population vs. percentage thing
When I see the word "world" used after a particular demographic group, I assume majority. You can't figure out whether something is a majority or not just by looking solely at its population. You need to compare their population with other population figures, thus coming up with a percentage.
Now India has a VERY large Muslim population. However, percentage-wise, Muslims are not even close to being the majority religion. Thus, calling it a "Muslim world" is highly inaccurate.
While India is considered a secular nation, obviously it's a very Hindu world. The Hindu religion is intertwined and melded into society, culture, and perhaps even other religions. In the same sense, I am a Sikh born and raised in Canada that celebrates Christmas. There's no doubt about the fact that I'm living in a Roman Catholic world.
Looking solely at the largest populations of a particular demographic, we could infer that a movie called "Finding comedy in a Catholic world" could be filmed entirely in China and India (highest and second highest populations).
Indonesia has the largest Muslim population on the planet. However, the Western image of Islam is someone of Arab or South Asian descent. Thus someone with Oriental features would be confusing for the vast majority. This Hollywood stereotype is the reason why most Hindus and Sikhs are assumed to be Muslim at first glance in North America (not by everyone, but the vast majority). Plus the whole turban thing makes it even more frustrating for Sikhs as 99.9% of the turbaned-wearing people you'll ever encounter in North America are Sikhs, yet foolish people assume Muslim or Muslim terrorist thanks to Osama's cultural (not religious) adoption of the turban.
The Middle Eastern nations and Islamic republics would be the best representatives of the true "Muslim world". Obviously it would be difficult in nations with extremists, but I'm sure they could found at least one nation with a Muslim majority that's not radical.
Someone made a comparison recently regarding this movie and Slumdog Millionaire and how it featured slum kids that were Muslim, yet was entirely based in India. Not only is that a horrible comparison, but it's actually very plausible that the kids in the movie were Muslims since a lot of the Hindu untouchables were the easiest to convert to Islam (to get their family's out of caste discrimination).
In regards to some comments that people have made regarding the choice of India as being ironic as it was supposed to satirize the stereotypical American ignorance, I think that's stupid and I'm glad I haven't seen the movie.
Oh yeah, and lastly... Albert Brooks is not funny.
P.S. Sheetal, the hot girl from the movie, is a Hindu. Not that her religion matters as she was playing a character. But an interesting tidbit, nevertheless.