Okay, deep breath.
Now, really: Should you apply for that job? There are actually two schools of thought, each with its own subsets.
[**Disclaimer: This is a blog, run by one person, with her own experience and opinions. In this and all posts, your mileage may vary.** Okay, let's carry on.]
1. Apply for every job you're remotely qualified for. Be versatile. Be open to a part of the country you hadn't considered. Nothing says you have to take a job you're offered. But you can't be offered any job if you don't apply.
This is actually not bad advice, though as I'll argue below, it's not for everyone. The more jobs you apply for, the more chances you have that one will turn up for you. People hesitate to apply for jobs for a few reasons:
- You don't want to live in that part of the country, or in a town that small/that big/that far from a coast or major airport. Okay, fine. We all have preferences. But until you check a place out you won't know. For grad school I shipped off to a college town in a part of the country I'd never before considered living with fear and trepidation. I found that once I settled in and let go of my regional preconceptions and appreciated the place for what it was rather than what it wasn't, I grew to love it. Don't rule out an entire region or state or city/town size sight unseen. If you're good+lucky enough to get a campus visit, you will want to look very closely at whether faculty there seem happy. Ask the happy ones what they like. Ask yourself if that appeals to you. Could you trade in world-class museums for a nationally famous farmers' market? Stunning views for great schools? You just. never. know.
- You have family considerations that keep your search geographically restricted. That may not be negotiable. But see if those restrictions can't be made a little broader. If they can't, fine. Not much to do about that.
- You're holding out for something that looks like your Dream Job: stop waiting. Keep those sights high, but don't hang your happiness on getting a job at your beloved alma mater or its near-twin. That's a recipe for bitterness, possibly unemployment, and eventually an inability to be happy in the job you do finally land. 
2a: Also don't apply if you're not qualified. Seriously: If the job ad at Dream Uni says that they're looking for someone who works on the Early Modern Atlantic and you work on nineteenth-century Latin America or medieval Spain, this job is too much of a stretch. If they say they want a Ph.D. in hand by August and you've only finished one chapter of your dissertation by January, this is probably too much of a stretch. Not that you couldn't do this job. Not that they might not fall in love with you if they got to know you. But there are lots of people who are better qualified, so it's likely that the tangential candidates won't even make the first cut. Spend your time (and your letter writers' time) on places where you have a shot.
In general, I would recommend to err on the side of "apply for everything," but with a caveat: "Apply for everything where you can imagine being reasonably happy." Maybe it's the type of school you wanted, though not in a part of the country you thought you'd ever live. Maybe it's not the school type you were looking for, but it lets you do what you want to do without having to commute to see your spouse. Maybe the position is written in such a way that it would allow you to develop intellectually in a way that a more traditional position wouldn't. Maybe the campus is located near a beautiful beach, forest, mountains, or desert that you could imagine enriching your life.
Know what your real deal-breakers are versus simple preferences, then look at every ad looking for reasons to say yes. Realize that the broader net you cast, the more potential fish you bring in. Then get drafting those applications.
 And anecdotally, I've heard plenty of stories from people interviewed by Dream Schools who have told me that a few of these places are acutely aware of the fact that they're the equivalent of the head cheerleader/football captain and treat their prospective suitors accordingly. Not all, of course, but some. So if one of these dream jobs does call you for a date, congratulate yourself on your noteworthiness... and then go in with your eyes wide open. It could be that the president of the A/V club or the quirky theater major with blue hair is going to be more conducive to your happiness.