Had this same problem today and fixed it in my case, happy to share.
Had the Droid for about a month. No problem at all with the GPS, already used it on trips, played with it to work and around town. Worked perfect. Then today, I'm taking my daughter to a sleepover and I have a chat with my Droid and tell it where we are going (love voice rec BTW, amazing!). Navigation loaded up and all I got was "Searching for GPS..." Very similar problem to what you guys have been saying. Go to Google Maps and it shows me on the map, only accurate within 1800 meters (vicinity of a cell tower my guess). Then it really freaks me out and shows me in Central Mexico. I'm driving down the road and the blue arrow is showing me moving, only in the middle of the Mexican Wasteland 1000 miles south of the Mexican border. Kinda funny.
Well, I get to researching and find this thread and start to realize that something was causing the GPS to screw up. Followed some advice in here, uninstalled Advanced TK and that did nothing. Soft reboot, hard reboot, hard reboot after 15 minute battery pull, nothing worked.
Then I figured out the cause of the problem.
I have the Power Widget on one of my screens. I also installed a widget last night for Toggle GPS On/Off.
The two conflict with the other. If you turn GPS on and off using the Power Widget, then the Toggle Widget doesn't like it. Imagine having two light switches for one light at the top of the stairs, the other at the bottom. The light at the top of the stairs can be powered off and at the same time one of those switches will be in the on position.
At least that is the way I envision it.
I uninstalled the GPS Toggle On/Off and I'm back to normal, blue arrow driving down the round with an error of about 6 feet.
So, my advice is to look at the Power Widget, it is probably conflicting with something and fighting for control of the GPS.
UPDATE: Out and about running errands and the GPS got worse. This time GPS Status wouldn't even open. Hitting "My Location" in Maps caused a FC.
Uninstalled Advanced TK, did a 15 minute battery pull, reboot and the problem was fixed.
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