But Shetland is not a nation, which is kind of my point. Sometimes, regional distinctions within nations are what matters, so that Shetland music sounds distinct from Scottish music as a whole. Other times you can tell it's from a certain area but not what "nation" it comes from, as with the borders example I gave above.

That two styles as disparate as Donegal and Kerry fiddling both sound Irish to you is simply because you are accustomed to thinking of them that way. To most people, Irish music and Scottish music both sound like "Celtic music," which makes Celtic music a viable category by the same intuitive reasoning. But this is a habit of thought, not necessarily a feature of the music.

Still, there's nothing wrong with that...your logic for considering both styles "Irish" is precisely the general public's logic for considering Irish and Scottish and Welsh and Breton music to be "Celtic." I for one say you're both right...or as "right" as one can be in cases like this.