However, the use of this feature for it in practice is . . . non-existent.
Google also famously went crazy when Motorola almost used Skyhook as network location provider for the Droid, on the basis that such information feeding back into their systems might be inaccurate and thus pollute their data collection activities. (They use Android devices as modern proxies for the WiFi slurping the streetmap cars used to do). As such Google have absolutely no incentive to resolve this problem as they are reliant on you not lying to them about where you are.
What's fun is J2ME got this right. Apps couldn't just assume they had permission for certain tasks, and users would be asked when the app wanted to do something. If the user refused you'd get an exception, but you were expected to handle it gracefully. It really wasn't that big of a problem, except for the user experience of the prompts some manufacturers chose to implement being fairly horrible.