It doesn`t work directly but it does work. But you will need to wait for a jailbreak which probably isn`t far off.
Once jailbroken you can then pair it with any bluetooth GPS receiver (several available that are costly but they can be had for $20 from China).
I have a 4th. generation which I`ve been using very successfully for several months using a bluetooth receiver and pairing it with Navigon (which I had bought for my wife`s phone so no, I`m not pirating) when in North America and just the Maps program when travelling. Can`t count the number of times it has saved me.
Still think it is silly that Apple hasn`t put a GPS chip in every Wi-Fi only device or implemented the bluetooth protocols to allow the device to communicate with bluetooth receivers. Everything is location based these days and leaving out that functionality doesn`t make any sense.