If you tell an Android phone to use visible WiFi access points to narrow down your location, you're giving it permission to send that info to Google in order to query the database --- and, of course, to help them build it up. At least with the "stock" Android skin (as seen on my Nexus One) the dialog box you get to enable WiFi use is explicit that it's sending location info elsewhere.
(You can say no; I did, and the phone periodically whines at me that I'm not getting the best possible location fixes because of it. But that may still not completely cut off the flow of location data to the cloud. You can infer a lot about peoples' locations and intentions from a Google Maps query stream even if they don't come labeled as "this is my current location" --- and it's hard to tell from the outside which of them do.)