Seven days ago, Apple responded to the concerns about the location data in a detailed Q&A. They promised a software update within a few weeks that would address three bugs. Apple delivered those fixes today in iOS 4.3.3:
Firstly, it reduces the amount of the cached location information to a week’s worth, rather than relying on a size limit, as it previously did. Secondly, it no longer backs up the cache to your Mac or PC via iTunes upon syncing, so the information isn’t available to anyone with access to your computer. And finally, the cache is now deleted from the device when Location Services are disabled in iOS’s Settings app.