Even so, the data should not be stored in a plain text file. Doing so gives any iPhone application access to that location data. Apple claims that it manages location preferences by application, but that's not true as long as this file exists in a plain text format.
That is incorrect. The iPhone employs sandboxing, so most areas of the filesystem are not accessible to iOS applications, and this cache is in one of those restricted locations. An app on the phone cannot read this information.
However, it is included in the iTunes backups. Those can be read -- but only on your computer, not on the iPhone itself.
(An exception to the above would be a jailbroken phone: the packages installed via Cydia would not have the same restrictions, although the recent jailbreaks do not remove the restrictions on apps from the App Store.)
