Knowing where people are tweeting from can enrich the Twitter experience in many cases. It appears that Twitter agrees with this, and has some wheels in motion.
Location can add context to a tweet, or to a conversation in general. More geo-information would serve only to make Twitter a more valuable tool. Dan Frommer says Twitter's next project is location. He writes:
The good news is that Twitter seems to be moving in that direction. For instance, the company has recently hired a new member for its platform team with a background in location services: Ryan Sarver, who most recently worked at Boston-based Skyhook Wireless. That's the company whose wi-fi-based location service powers Apple's iPod touch and helps out on the iPhone, among other gadgets.
And at a recent conference, Twitter's API lead Alex Payne reportedly said the company "would make other changes to support search, including adding location based info to each Tweet." So it seems geotagging tweets is an area the company will be investing in sooner than later.
Obviously, I'm going to have to take this opportunity to point out that our own TwellowHood (a feature of Twellow) is already a valuable resource for finding Twitterers (or potential Tweeps if you will) by location.

With TwellowHood, you can use an interactive map to locate people where you live (or in other areas). At this point, only the US and Canada are supported, but more countries will be added in the future. Updates are announced via the Twellow blog and @twellow.
It's no secret that Twitter has had trouble with user retention. Well, if people could more easily find others from the areas where they live or used to live, or work, or anywhere they are interested in, the service is going to be more valuable to them. That's why we think TwellowHood is a great tool, and that's likely (at least partially) why Twitter is looking into location.
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More localized trends
There really needs to be more specific, targeted trends to Twitter and search Twitter. Many of the global trends don't really directly help me. I would much rather see trends that get down to my city and even more specifically my zip code.