The location service on the iPad is far, far better than the iPod touch. So much so that there is definitely something else going on behind the scenes, imo. I don't think it has GPS but I do think it is using the compass in a very clever way to make the locator more accurate.
If you think about the world as a map (for simplicity sake) and then you put a mark on the magnetic north pole (obviously a known fixed position) and tell someone the exact compass direction that another, unknown, point is from the north pole you could draw a line across the map where the unknown point must lie.
Now, if you then combine the long/lat of some know nearby points, and distance from those points (wifi location from Skyhook) and/or IP geolocation information, you can get a good idea of about where you are located. Look and see where your compass line intersects all of that other information and you can get an even more precise location.
This of course would hinge on the magnometer being really sensitive, but there's no reason to think it's not, I guess. I'm not saying that Apple is doing this, but just that they COULD use this to get the sort of location fix I am seeing on my iPad without GPS.
Either way, the wifi model is definitely going to be useful for location based services like finding restaurants and theatres and things like that.
