Go to any Apple website and check the published specs for iPhone 4/3Gs or iPad with 3Gs. Here's a link to help with that:
http://www.apple.com/ca/channel/iphone/iphone-4/tour/specs.html
You will see that Apple does not just offer GPS, it offers "Assisted" GPS. Here we once again see Apple's zeal to optimize. The location cache that's causing all the fuss is what provides the "Assist". Some secret.
When you are moving about, your device notes and identifies cell towers that come in range. It gathers their identification, which initially does not include location. It then further queries a database to get the location info. The location is associated with that tower ID, and the two together are stored in the "notorious" cache.
When a device owner seeks to use GPS the program assists by instantly getting a preliminary location fix by accessing cell ID and location info in the cache. Without the cache, it would have to seek the cell tower location info first, so the existence of the cache speeds the finding of preliminary location info. That info is used to speed up the tracking and locking-on of the device to the GPS satellite.
So, the cache exists to enable a faster GPS lock.
Sinister?
No, but maybe a bit sloppy, I don't know enough to be able to say for sure. Maybe Apple should only log and locate a tower once, which would limit the adding of current data. Maybe the file should always be encrypted.
I suspect we will find out, because legislators in the US and Europe have become involved and this trivial-seeming issue won't go away.
But, with regard to the Steve Jobs email, it does seem clear that Apple is collecting no information. Apple may once again be the victim of it's zeal to optimize features.