Pretty sure this is Switzerland. I lived there for a very short period of time near the mountains and it was breathtakingly beautiful.
When I was at school, I was studying German (full disclosure: in my schol you HAD to study a language (either French or German) and I had a massive crush on a girl in the German class... ) and my family has friends in Switzerland who are German. In order to improve my German speaking, I went and lived with them for two months. Amazing stuff. They had a house halfway up a mountain in a picturesque area of Switzerland. My German didn't particularly improve, but I had a lot of fun!
That is so awesome, what a great experience! I've always wanted to visit Switzerland! (a bit of a further and more costly trip for me unfortunately)
Somehow this immediately gave my Dungeon Siege vibes... can't directly find the town a building like this was in. Grrr, Imrahil