I started writing an “Apple’s not really spying on you” post a little while ago and ditched it on the grounds that I don’t fully understand all the issues involved. (That’s a first, eh?)
But I recommend this post at the Center for Democracy and Technology by John Morris, who speculates that the real reason Apple set up your iPhone to track your location is to save on battery life.
I do think there’s less to this controversy than meets the eye (as Morris writes, the location file “normally never leaves your devices”). Still, Apple (and Google, which does the same thing with its Android operating system) could have done better.