I bought an Ipod Touch this past Christmas and got a bit of a surprise after it connected to my Wi-Fi. With out GPS hardware it knew right where it was, even showed it on the location map. My secured since day one home Wi-Fi is mapped! And I live in small town USA.

I would've found it unsettling if I came from the 19th century.

I wonder if it's the router's IP, MAC address, or the SSID it's using? I had a different ISP and hardware about six month's prior that.

It's these guys, apparently.

http://www.skyhookwireless.com/location-technology/coverage.php

They're busy mapping wifi data which companies like Apple can then link. You'd need to be in some pretty remote areas to not have been mapped according to their coverage areas. Oh, and it uses the router's MAC address.

I found it unsettling when my my IP address suddenly changed and the internet thought I was in Italy.

Did you get messed up searches and webpages?

I'm going to connect an old wireless router to the existing one and then connect to the wifi of that router and see if the Ipod still knows where it is.

Spoiler alert: It will still know where it is.

That I would expect. I did find the fact I apparently signed into my yahoo mail from Portugal the other week a bit odd though.

I got "this video is unavailable in your country" messages when browsing Polish websites A site with geolocation thought I travelled 2000 km since I last logged in. An odd occurrence. It fixed itself after a while.

It'll read the still broadcasting original wifi regardless of whether connected to it?

It has a builtin etherweb sensory apparatus.