The location used as Wallies Hide Out was formerly a Mexican restaurant called Santa Susana Cantina. It's located near the Simi Valley just north of LA. In Episode 18 we see James biking his way out of Twin Peaks to an unknown town where he stops into Wallies and meets (to all our dismay) Evelyn Marsh. The first part of the scene, before he pulls up to Wallies, was filmed during the pilot shoot in Snoqualmie, WA. You can even see a "Entering Snoqualmie" sign in the background as he's racing down the road. A couple of roads in that area were featured in the scene. Luckily, all those roads look exactly the same today as they did in 1989.
When they cut to James riding up to Wallies, you can see the difference in landscape from lush, overcast Washington, to arid, sunny California.
All Wallie's interiors were filmed on a soundstage. Here are a few screen captures of the set they built for its interior. Notice the odd, rather horrid painting behind the bar from episode 22. It's unclear why they switched it from the more woodsy looking painting used in 18 and 21.
Standing outside the cantina, which had recently closed and is currently being used as office space, I didn't get much of a Peaksy feel. In fact, it's pretty busted around there. Seeing the rocky, cactus riddled mountains rising behind it and the suburban valley below, you wonder what made them choose this spot... especially given how out of the way it is from many of the other locations. Here are some photos of the inside of Santa Susana Cantina when it was still a restaurant/bar.
Here are two aerial shots of the location from different angles . Not at all how you pictured it, huh?