I break into a site you use often and get a lot of personal information on you, but not enough; I can see approximately where you live, and go through your trash to finish up my collection (e.g., rifling through garbage to find SSNs, etc.)
If you look at my IP, I'm working in Delaware, but I'm actually sitting in Colorado Springs. It's not evil, but I'm not gonna be too happy if you advertise a "local" deal.
On the down-side it will allow people to micro-target without peoples permission.
Like anything this is a tool, that can either be used for good or evil. With great power comes great responsibility.
I think the service can become more accurate overtime as it establishes more known locations. Each known location could be used to determine the n+1.