I've had the same problem recently as well..
However, I only encounter it when Wifi is turned off (which it is mostly to save battery, as my mobile internet is fast enough).
When I turn on wifi it finds me, but as soon as I go to 3G only it only displays "Sweden", instead of the city i am currently in.
Also, I have to press update button manually for it to show any weather at all
This was working fine until I installed Froyo as well as the first weeks after installing it..