More information on that function has been revealed, and now it seems it's not quite as potent as first imagined. It seems the “blacklist” is capable of disabling access only to the Core Location API, which programs on the iPhone can use to gather location data. It would be used for programs like GPS and navigation programs, and could presumably be used to locate someone as well. It seems Apple's intention is not to be pushy, but rather ensure that any application using this API is secure enough to avoid leaking someone’s position.
Not a bad idea, though I'm sure some more suspicious types will still be wary of it.