GPS in a well-covered area is accurate to around 10m or so. Combine that with a smartphone's internal compass and it knows what direction you are facing, so can pop up a floating box in roughly the right direction. Simple idea, and quite a nice indication of where things in the Augmented Reality space are going.
Sure but getting a decent GPS fix in the metro canyons of big cities isn't a given (even with A-GPS).
You could make a lot of money by solving the problem of how to reliably determine location in major cities indoors and out (and not just relying on known wifi-hotspot triangulation like skyhook does).
Just off the top of my head: Google can probably do this quite easily, especially in an augmented reality application.
They already have street view data that's highly accurate, they also have A-GPS data on roughly where you are. They can refine this by comparing the image coming from your phone to known street view images... The computing power behind this would be pretty insane though.
Yeah, especially for a mobile device. It's a non-trivial problem and even your solution has the problems as the skyhook solution. The data goes stale and needs to be refreshed continually.
