The NSA was granted a patent for an IP geo-location technology based on triangulation using latency measures. We played around with a similar approach using UDP several years ago and you could triangulate to the zip code level or so. A better way I think than the current approaches being discussed. Not sure if the NSA patent is being commercialized or not though.
http://news.com.com/NSA+granted+Net+location-tracking+patent/2100-7348_3-5875953.html
