Only two problems I can think of
1) What about the people that enter different things for the same location?
Louisville, Kentucky (USA)
Kentucky, USA
USA - Louisville, Kentucky
USA - Louisville
2) We would need a way to opt into this behavior so that D2JSP doesn't become Facebook-like in that people know you live near them without you wanting them to. Yes, people can leave the Location field blank but I don't view this as a viable solution. Maybe something like this:
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Otherwise, not a bad idea. I don't care much for it since I'm a bit of a loner, but there's people that would like it. Just my $0.02.