The Geoclue developers have thought a lot about this, and plan to allow you to specify to each application what level of detail you want to provide - so, for example a mapping app like Maemo Mapper will want the best accuracy possible, but you may limit your Jaiku / Plazes apps to only be given the town name, no greater accuracy. This should be user definable, allowing *you* to choose what level of detail each app / service gets.
Geoclue, and many other location based services solutions are mainly about providing your location to search engines to allow it to tailor the content to you (as opposed to providing a full-on tracking service). Yes, you can use the likes of Geoclue with a tracking service, but that's your choice, it's certainly not forced upon you. Geoclue can still help here though; I could hopefully use Geoclue to limit my location information to something like "Home", so I can happily publish to all my work colleagues (or even the whole Internet) that I am "Working from Home" without letting any of them know where "Home" is, whereas I may want Google to be given a more meaningful location to allow it to provide information on services close to my current location.

I, for example, upload pictures to Flickr with location information of where they were taken, but then limit access to that location data to friends and family only (as a default). Most LBS (location based services) work like this, and those that don't will (in my opinion) never be truely popular due to privacy concerns.

anidel - it would seem to me that's it's possible what are you suggesting is the middle layer between Geoclue and stuff like Google Maps - in essence a logic engine that takes the outputs from Geoclue and feeds it into apps like Maemo Plazer / Maemo Mapper / other applications as and when appropriate. If nothing else, I would recommend you join the Geoclue mailing list (if you are not already on it), and discuss your ideas with the people on there as well to see how best it fits into their architecture.

Either way, it sounds very interesting, and hope something comes of this discussion...