The better news is that we're going to be able to use these new APIs sooner than you might have thought, given the relatively new nature of the API draft spec. Opera has implemented the spec in builds for several months, and it will be implemented in the release of Firefox 3.5. More recently, it's become evident that Mobile Safari in the new iPhone 3.0 software provides a geolocation API, and it appears (outside of the NDA realm, at least) that it is indeed compatible with the W3C API.
No longer asking a user to search for the closest location of a store. Just show them the closest, and allow them to adjust if needed.
Allowing for a nearly-actionless customization of content based on location, like for a news, weather, or traffic site.
Letting a user know if your business provides service in that user's area.
Locating users' contacts in a given area (the stereotypical geo-social play).
All sorts of other uses.
The new API won't get around the privacy concerns of asking for a location, so it doesn't mean you can be sketchy without permission, but it will eliminate a lot of potential steps users have to take now. Users will be prompted to allow a site to know the device's location, and have to be able to revoke that permission, much like the iPhone currently does.
True, geo is probably most useful for mobile apps, but there are plenty of potential uses for users who aren't on their phones as well. Hopefully, 2009 and 2010 will be the years we start to discover the real potential of a geo-enabled web.