Would it really have worked as well if he was in a fictionalized version of the Soviet Union? I do not believe so. 1984 is not a novel meant only to be entertaining, but to also to say a few things about totalitarianism. Placing the novel in a setting more reminiscent of the Soviet Union would have been a distraction: it would have made it far too easy to interpret it as about the Soviet Union and its brand of socialism, but Orwell was not so particular. He was a democrat and a socialist, in that order.
Furthermore, by placing it in a world his readers would know and recognize, he increased the emotional impact. The setting is London, but a London changed almost beyond recognition. Letting Winston live in a place many of his readers would know, perhaps even live in themselves, and see it corrupted through his eyes, is a far stronger experience than if it had been set in Moscow, distant and barely known.
Finally, one of the themes of the novel is how Ingsoc has created Newspeak, a language that is intended to be an almost insurmountable barrier to questioning Big Brother, but still recognizably based on English. If the novel had been set in the Soviet union, Orwell would have had to pretend that Newspeak was a translated version of Russian instead, which again could be a distraction from his point that totalitarian regimes will try to control language and thoughts as well as actions (see his essay "The Prevention of Literature" for more on this).
So while, yes, one could probably transpose the action of 1984 from London to Moscow and still have it work as a novel, doing so would have had implications that ran contrary to Orwell's intentions. By placing it in Great Britain, he could both distance Big Brother from actually existing regimes, and did not risk lessening its impact.