This Jabba stuff is really fascinating. I don't think I ever really expected him to be on Tatooine either. I know I didn't expect him to have a gigantic palace (since he was a gangster), but the fact that he was based on Tatooine was something I just accepted because he was there.

It could be equally likely that he was a denizen of that general sector of space. He was certainly a rich guy with a lot of gangsters that followed him, and the idea of him being able to travel works. This could have actually been used in RotJ to make the beginning seem a bit less plodding and disconnected from the rest of the film. It could have been an interlude in the movie's primary story (instead of of the beginning). Hmmm.