I would be disappointed if the gen1 would be crippled. Because we all saw that it works, right?
No because ONLY developers have been granted access to use, test and see it. Also under the developer NDA it is not supposed to be discussed (rules 5,6&10) except on the Apple developer forum.
5. Definition of Confidential Information.
6. Nonuse and Nondisclosure of Confidential Information.
10. Discussion Forums.
All that being said, i don't see why Apple would go to the trouble of implementing a functioning route tracking system on a non-GPS watch to test for GPS functionality on an unreleased piece of hardware. More likely than that would be simple proof of concept that wifi triangulation works, obviating the need for GPS. But why test that with the public, rather than dogfooding internally? No, I think they intend to release this. Clearly it works most of the time.