I use location services on an iPod touch almost daily and without a network connection. The location cache is currently limited by size. It seems to hold about a small city's worth of wifi hotspot coordinates, which is downloaded in large blocks at a time.

Reducing the size of the wifi location cache to a mere 7 days could severely reduce the usefulness of that feature.

I really hope they're not killing a great feature because of some hysteria and bad reporting.