You guys, you've all be overreacting to the knowledge that the iPhone has been secretly tracking all of your location data in the iPhone. That's not true at all! You see, they've just been "maintaining a database of Wi-Fi hotspots and cell towers around your current location." Well gee whiz, that doesn't sound as bad.
Of course, your phone has been tracking your location. It's been storing your location over time in an unencrypted file, and anyone can access it. Apple can say whatever it wants to make you think everyone is hysterical and should just listen to big daddy company and calm down, but it's pretty blatant PR doublespeak.
But in any case, no matter how Apple is selling it, it's an issue that they're fixing. An upcoming iOS update will reduce the size and stop backing up the cache, and it will be deleted entirely when location services is turned off. Later, when iOS 5 rolls out, the cache will become encrypted. All good solutions! It's too bad Apple treated its users like idiot children when announcing them, but the end result is good enough.
You can see Apple's full statement here.