Many years ago, I was one of the US Army's top direction finders. An exact location isn't necessary to extract lots of helpful data. Sometimes just the general vicinity will do.
For extreme example, consider if such info had been used to help find bin Laden's courier's travels. It wouldn't be necessary to know all his exact coordinates. Just knowing the towns or heck, even the country in this case, is a huge benefit.
More down to earth, knowing the town where a battered wife goes, knowing that a suspected undercover agent goes to DC, knowing that a spouse visits their ex's city, knowing where your employees were at any hour... any such general location tracking can be powerful info.
Yes, I think it was pretty innocent data collection. No, it's not entirely without possible harmful side effects, albeit for only a small portion of the population.
No, but Apple under Jobs is highly prone to misdirection, which is why they kept the spotlight on that file, not on other collection files.
That's correct. Apple's not tracking people exactly. However, they do keep a record of the zip codes you've done location based requests from, in order to better serve ads to you.
As for that particular database file, the info came from Apple, so there was no reason to send it back.
However, the phone does at times record its exact GPS location and any nearby hotspots or cells, for later transmission to Apple. We are where the later downloaded crowd-sourced info comes from, after all.