Very few phones have a GPS chip, the phones use the transmiters to triangulate their position same as has been done since the war. Try taking an i phone to a bad signal spot and trying the 'gps' system.
It then converts it to whatever your needing, a clever gps style co ordinate or a spot location on a map.
The overlap between wifi providers means the uk is well covered, Providers like mobile me for example transmit the lost signal to your ipod globally like text messages. The important bit is the location apps cost money as the phone has to keep pinging the transmitters to check its location. The wifi system doesent cost but works the same way.
Its also passive so uses minimal power on the i pod, and ultimately your bike i suppose.
Have to admit it has got me thinking, i fix i phones and such, changing screens, lcd's battery's, general repairs that kind of stuff as a side thing and it wouldn't be a whole heap of trouble to bury one in the seat foam for example.