Hi elkin!
This is a very good question!
I would say I'm drawing from a few different kinds of sources. One is the classic Yiddish stories you refer to -- I.B. Singer, Scholom Aleichem, I.L.Peretz et. al. While I agree that they're often satirical, I don't necessarily read the protagonists as exactly laughable. Often, in fact, they are the kind of protagonists I actually like to play -- curious, difficult, flawed, but resilient people who achieve pyrrhic victories or moments of glory, respite, or hope in essentially untenable situations. The stories are, quite often, not mocking the shtetl characters, for all that they are full of frustration, ill-luck, and pathos. Consider the cantor who foils the devil and achieves a one-mortal Harrowing of Hell in "Yom Kippur in Hell", or the prankster/seducer/quasi-rapist who ends up in the bittersweet love affair of "Taibele and Her Demon", of the theatrical runaways of "Wandering Stars", the cross-dressing orphan protagonist infiltrating the Talmudic establishment in "Yentl", or the tragic infidelities and fidelities of "The Unseen"... these aren't just characters things happen to. They take great risks, crazy risks.
Now they also aren't characters who gradually accumulate power and skill and resources, getting better at solving problems until they have solved the great problem, defeated the evil, and returned everything to its righteous previous state. That's the traditional FRPG narrative, and to some extent the standard "heroic" narrative of modern times (it wasn't the heroic narrative of, say, ancient Greece, in which heroes were hurtling towards the tragic-ironic destruction warranted by their hubris). The fact that the shtetl narratives don't fit this pattern is, for me, a feature, not a bug. There's a brilliant talk at
http://imaginaryfunerals.com/beyond-representation/ by Joli St Patrick and Avery Mcdaldno -- about "queer mechanics", and the interaction of mechanics and narrative -- in which they talk about how this "I get more and more powerful until I can solve the things and put everything back where it should be" is a straight narrative. This is well taken. It's also not a narrative that fits very well with the shtetl (the inhabitants of the shtetl -- with the possible exception of some of the Zionist, Bundist, and revolutionary ones -- might have called it a goyishe narrative). If you are already in exile, in the
goles, if you are already poor and at the margins, then the story doesn't start out with an idyllic state of affairs in the first place, and it also probably doesn't end with you having attained fame, glory, riches, and power. I consider that a good thing. Less Conan, more Cohen.
I'm trying to capture, in the mechanics of shtetl world, some of the sense of ironic bittersweet twists of fate that those stories are full of, the sense that you are to some extent at the mercy of fate -- but not entirely. The heroes of Shtetl World are shtetl-era Jewish folk heroes; they're not going to just go bash their way through the bad guys (or if they are, it's probably going to make things far worse). They're certainly not passive, indeed, the stuff the world is throwing at them requires great energy and verve and perseverance to deal with; but their methods are going to have to be different. They're tricksters, persuaders, mystics, hagglers, sneaks, and inspirers of communal action...
But I was talking about sources. Another source is folktales, as distinct from literary stories about the shtetl; these are full of heroes, of course, and many follow traditional patterns of other European or North African or Levantine folk tales, with a few Jewish twists (faeries and djinn become demons, for instance, and the hero's victory might have an absurd or melancholy underside...) One collection I like is "Rachel the Clever".
Another source is nonfictional accounts of what the shtetl was really like historically -- in which there is plenty of room for surprising heroism (for instance in moments of military resistance under invasion, such as during the wars between Polish and Ukrainian nationalisms, that literary accounts tend to overlook), and, in particular, in historical accounts of what was believed in the Jewish world about magic-- which offers no end of inspiration for fantastical occurrences.
Another source, particularly for magic, but also informing the worldview of the characters, is the Talmud itself, which is full of crazy badass protagonists (check out the wizards' duel between Eliezer ben Hyrcanus and Gamaliel). Of course that's a much earlier era, but it's also a text that was constantly present in the minds of shtetl jews, and that they would frame their experiences in terms of.
And a final source is, of course, the Western fantasy tradition -- all the Tolkein and D&D rigamarole -- and my own experience of reading it and feeling slightly askew to its concerns. I very much want characters from the shtetl to go find trolls in the woods, to confront magical dangers and have to deal with them, yes, heroically. I think I. B. Singer in tension with Fritz Lieber is kind of more interesting, to me in this moment, than either of them alone.
Shtetl World is inspired, variously, by three distinct works of Vincent Baker -- Apocalypse World of course (especially as filtered through Monsterhearts) for the structure of moves and the articulated model of what MCs and players are up to when we do this thing; DitV, for clues on how to systematize and transform into playable form concerns and imagery drawn from a real-world religious-historical context; and Storming the Tower, for the model of the PCs as people rooted in a community who have to face dangers to it. As much as I said above that the "we defeat the evil and return the world to its good state" is a questionable model in the shtetl, it's not that I want to wholly reject that model either -- rather to problematize it but also celebrate it, to show where it applies and where it doesn't. I actually don't want this to just be a serious realistic treatment of a difficult historical era, a la
Grey Ranks. I want it to be a mashup of serious-historical and epically-fantastic -- which, in tone, makes it close to Dogs, I guess -- if you replace the Utah self-reliance and claims of straightforward self-evidency with Pale-of-Settlement poignancy, complicated ambivalence, and bittersweet irony.
Does that make sense?