Yes, ads delivered using this technology would be very precise, but is it also an invasion on your privacy? Center for Digital Democracy and U.S. Public Interest Research Group think so, and according to Forbes, they will file a complaint with the Federal Trade Commission that alleges deceptive practices in the mobile advertising industry.
They aren't just targeting Google and Android, but also other companies involved in the mobile advertising business: Nokia, Yahoo, Microsoft, AT&T and Verizon. However, Jeffrey Chester, founder and executive director of the Center for Digital Democracy, claims that Google is their biggest concern, as it is "a leader in creating the mobile data collection apparatus."
I'm very concerned about privacy, but I don't think this is entirely fair to Google; making the assumption that they'll violate users' privacy before they've actually done it (in the mobile realm) seems a little far-fetched.
It's definitely true that cookies combined with geolocation (you don't even have to have a GPS-enabled phone; your position can be triangulated from cell base towers or even via wifi) can be used for very precise ad deployment; you could be walking down the street with your mobile browser opened and get ads for actual stores in that very street. However, this technology needs to be opt-in, and the users must be clearly warned before it's used on them if they prefer to keep their location to themselves.