So after a long (and very informative) chat with Apple Tech, I've learned that the GPS chip will not operate if you're over wifi (or tethered). The GPS chip will only work if you are pulling 3g cellular data.
I would challenge you on this fact. I have not talked to an Apple rep but I have a 3G version iPad 1. I do not currently active data plan. If I turn on 3G data and turn off wifi, I get a great GPS lock in a few seconds even driving around. It is faster when I have active 3G because of A-GPS. Still I think that the GPS works as long as you have Cellular Data on. I think that also activates your GPS chip. Please educate me if I am wrong but I tried it again just now and drove around to test. I did not get the blue circle but only the blue dot.