Town or village in Oaxaca State that is "the home of mezcal"?

score:3

Found it!

It turns out I took a photo of the sign I mentioned.
banner/sign above road
BIENVENIDOS A STGO. MATATLAN OAX.
"CAPITAL MUNDIAL DEL MEZCAL"

The town is called Santiago Matatlán and styles itself "World Capital of Mezcal".

It's about a forty-minute drive southeast of Oaxaca City and not so far from two major local tourist destinations: The ruins at Mitla and the rock formations at Hierve el agua.

English Wikipedia page (very basic)
Spanish Wikipedia page (better but doesn't mention mezcal)
Facebook page (in Spanish)

There's also a pretty good and recent blog post on Santiago Matatlán and its mezcal by a guy called Dave Miller.

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