I actually implemented automatic IP geolocation on RateMyStudentRental.com, but it confused a lot of people because they weren't expecting it.
You have people trying to search for rental housing near their school while they're back home over break, and people searching for something across town by campus while they're at work, etc. Even the people who were trying to search for something nearby still expected to have to enter in the address, so they were completely thrown off, which is counter to the whole "Don't make me think" mantra. And don't even get me started on the people searching behind a corporate firewall, where the corporate headquarters (and IT dept) were halfway across the US.
In the end, I had to remove the automatic IP geolocation. Perhaps this is specific to my niche. Perhaps this feature is still ahead of the time (as the porn industry often is). Either way, that's what happens when you must hold your website changes accountable to actual metrics and results.