The river Don is one of the great rivers of Russia, flowing 1,220 miles from Tula to the Black Sea. It has been a vital waterway for Russians for hundreds of years, and the subject of romance and poetry, as it wends its way across the vast Russian steppes. But the River Don is perhaps most famous in the west as the setting for the writer Mikhail Sholokhov's And Quiet Flows the Don.

This huge novel, produced in serial form between 1928 and 1940, is acknowledged as one of the masterpieces of Russian literature - making Sholokhov a household name in his native country and winning him the Nobel prize for literature in 1965.

Since 1984, shortly after Sholokhov's death, the Don has also been the setting of a rapidly expanding museum, devoted to Sholokhov and the now-vanished Don Cossack culture he so famously brought to life.

It is hard to underestimate the popularity of Sholokhov in Russia, even today. It is widely believed that And Quiet Flows the Don is one of the most read novels in Russia, and Sholokhov is frequently mentioned in the same breath as Leo Tolstoy. (Tolstoy also enjoys a popular memorial museum in his former home, Yasnaya Polyana, based at Tula, while Fyodor Dostoevsky has two museums dedicated to him in Moscow and St Petersburg.)

But if one of the themes of Tolstoy's War and Peace is the unifying effect Napoleon's campaigns had on Russia, then And Quiet Flows the Don deals with the destruction of the Russian Revolution, and in particular the failed struggle for independence of the Don Cossacks from the Bolsheviks.

A central aim of the Sholokhov Museum is to preserve what little remains of Don Cossack culture while there are still a handful of elderly people who remember it before its disappearance in the mid-20th century.

But if Sholokhov's fame, and inclusion in the Russian school syllabus, guarantees a steady stream of visitors, the museum's location and economic environment present major challenges. Spread over a 30,000 hectare site, the museum includes all Sholokhov's various homes (from modest cottages to his final, luxurious villa), a restored school, a restored Cossack village completed last year, a children's museum and activity centre, working Cossack stables, nature reserves, a mill with pre-war cinema (which is being restored), plus a new museum and art gallery, stores and lecture rooms.

It is - to western European eyes at least - in the middle of nowhere, making its 55,000 visitors rather impressive. More than nine hours drive from Moscow, and five hours to Rostov on Don by car, the museum is centred on the quiet village, or stanitsa, of Veshenskaya. It is home to fewer than 10,000 people, many of whom subsist on a small plot of land with a single cow - if they are lucky. Some of the single-storey cottages have outside, hole-in-the-ground lavatories and no running water.

Unemployment is high: the museum, with more than 300 employees (many of them working in agriculture on the land surrounding the museum, a former collective farm) is the biggest single employer in the area. The scenery, with the Don flowing serenely by, is inspiring.

Alexander Sholokhov has been the museum's director since 2001 and is Sholokhov's grandson. (This situation raises few eyebrows in Russia: indeed having the Sholokhovs on board is seen as vital by staff for fundraising, profile and political influence.)

'We have two major challenges,' Sholokhov says. 'Obviously, one is the quality of the museum product. The other is the development of infrastructure; places for people to have meals, hotels and entertainment. Fifteen years ago there was nothing; now, although progress is slow, we have hotels and companies are starting to set up to provide meals. It is a major challenge for us to activate the local community to become more entrepreneurial.'

Sholokhov adds that the museum is setting an example, raising its income from a 200,000 roubles (£4,000) five years ago to more than 3.5m roubles (£70,000) last year. For a Russian state museum far from Moscow or St Petersburg, and one used to total subsidy, this is a step forward. Although as a proportion of its £2.8m budget (£2.2m of which is for ongoing capital costs), it remains tiny.

According to Mikhail Gnedovsky, the director of the Cultural Policy Institute based in Moscow, it is a common problem shared by Russian museums.

'The 1990s was a period of big changes and experimentation among museums, but at the moment the trend is more conservative,' says Gnedovsky. 'There are lots of reasons for this, including a political backlash against rapid change. But it also remains difficult for Russian museums, even if they would like to create mixed economies and partnerships with business for example.'

The other challenge, faced by so many literary birthplace museums, is the way it brings the story of the author and his works to life. Perhaps understandably, one of the first buildings to be opened to the public, the villa in which Sholokhov lived in from 1949 until his death, has an overtly memorialising quality (down to the graves of the writer and his wife in the beautifully manicured grounds).

The house has been left, almost eerily, as it might have been if Sholokhov had merely gone for a walk, including a half-smoked cigar in an ashtray by his favourite armchair. The presence among the guides of family members and other friends and teachers adds to the quality of time suspended, as do visitors bearing flowers and poems to place on his grave.

But according to Vera Kashibadze, a senior scientific researcher who joined the museum two years ago, the emphasis of the site is starting to change. 'We are trying to move it on from memorialisation to looking at the impact of Sholokhov's work, his cultural and social role. Ultimately, we are trying to create a sort of open-air museum of the novel where the landscape and historic buildings of the site work together with the great novel,' she says.

With the centenary of Sholokhov's birth in 2005, impetus has come from the state and visitors. Last year's Sholokhov Spring festival, of which the museum is the key organiser, saw about 120,000 visitors to Veshenskaya - most of whom were obliged to camp or stay in villagers' homes.

The festival has also resulted in a visit by president Vladimir Putin, who has declared himself a major supporter of Sholokhov. How this admission will be viewed in the future is unclear, but for now it guarantees extra state support for the museum's major programme of new exhibitions and building conservation and reconstructions.

In the past year, the museum has opened a restored Cossack village
complete with animals and is training staff in traditional skills, from thatching to animal husbandry and crafts. It has created a new Sholokhov Time and Destiny exhibition, built its first proper set of stores, created a children's museum and education programme, while restoring a significant mill complex to open in the next three to four years.

Sholokhov remains a somewhat controversial figure. In spite of the subject matter of And Quiet Flows the Don, Sholokhov became a favourite of the communists. He was a party member from 1932 and won the Stalin prize in 1941 when his work was hailed a masterpiece of socialist realism.

More recently, one-time supporter, the writer Alexander Solzhenitsyn, claimed that Sholokhov had plagiarised parts of And Quiet Flows the Don from a lesser known writer. These claims have now been discounted, but perhaps were credited at the time because Sholokhov's other works never attained the same quality.

The Sholokhov Museum touches lightly on these controversies. How far it is prepared to delve into the complexities of this writer in future years will be an indication of how far Russian museums are able to challenge the past, as well as celebrating the country's often misunderstood and marginalised cultures.

Jane Morris is an arts writer and editor and a judge of the European Museum of the Year Award