Reason for Setting In Video Games
One of the most likely reasons for Germany being a main setting is the fact that it was a main battle ground in WWII. Germany was the primary aggressor in the war, and Nazis make for a perfect "pure evil" villain stereotype that you can shoot without feeling much guilt. Another possible reason for the pick of Germany, at least in Wolfenstein's case, is the fact that the Nazis had an overly-exaggerated interest in the occult, which, expanded upon fictionally and perhaps combined with one of the many Germanic castles, can be quite an interesting premise.
Ironically, Germany itself applies the regular German Civil Code to video games, effectively prohibiting any depiction of flags or symbols used by the NSDAP. Even the smallest swastika has to be edited out or changed (often to a simple cross), much to the dismay of foreign developers, who have to adapt their content accordingly. Adolf Hitler usually gets written out of such games altogether, often leading to outlandish storytelling in the German editions. Many German gamers are upset by the double standard since movies, being considered an art form by law, are not limited in this manner at all, as long as they don't aggrandize the Third Reich.