Not rocket science by any means, but I'm beginning to develop citation formats for location numbers, which would be necessary for scholarly references to Kindle editions. Right now I've got simple adaptions of the MLA style posted
here. Down the road, I'd like to offer more reference styles and code to allow bibliographic software (EndNote, Refworks, and Zotero, for ex) to correctly display Kindle records.
Locations are a fine way to reference a text. If readers of your book or article have the Kindle edition, they can go directly to the cited material. The challenge is to allow non-Kindle readers to find approximately the location cited (this is a problem when there is no "standard" edition of a classic book, too). Adding a chapter title to the reference either in the footnotes or in the bibliography should help. Very open to suggestions, though.