In Snapchat your location is used for the geofilters, I guess that's why they have to get your location. I do think they should have an option to turn off geofilters and not use your location at all though.

I'm not by any means a Snapchat power user. But I really like the way my phone tells me where my normal photos are taken — it makes it very easy to find the photos. Also, any chat app would benefit because it's very easy for me to remember "i was talking about foo with Bar when I was over in Baz", but much harder for me to remember when that happened. So to me location tracking would offer many useful features. (They may not be worth it, and even the useful ones might not be available, but those aren't answers to the question you asked.)

@cassowary, geotagging your photos can be done without logging your location on the server. It can be done locally. Plus, I thought that Snapchat does not keep the pictures you've taken? (I have been out of that since then, so I don't know.)