The GPS on the iPhone depends on a cell-phone connection to work. This is why even the iPad does not have a GPS if you get the Wi-Fi version. The GPS is not a full stand alone GPS but rather one that is built in to provide location service and depends on a cell tower for some of its initialization. There are, of course, full GPS's available but Apple in their infinite wisdom and greediness for cut of any hardware sales does not even support a standard external GPS. Instead you have to buy a special qualified version which is an additional $100+ bucks even for a blue-tooth version since they have disabled that functionality in their blue-tooth software.
However, having said that you can get location services from the Wi-Fi itself. You can even make this more accurate by submitting access points, even your own home. http://www.skyhookwireless.com/locat...y/coverage.php