Well, Lookout has several features that are going to decrease battery life, since it's running all the time. I don't have it but I believe it's got a virus scanner, firewall, and phone location tracking, right? It's maintaining open connections to a server, tracking its location, monitoring active network connections... Try uninstalling it. I don't have any specific knowledge of how it impacts battery life, just saying it could definitely be the cause. Is your little GPS satellite icon blinking in the notification bar? If not, it isn't accessing the GPS receiver in the phone.
The reason the warning is there is because your phone can get rough location estimates by just knowing where it is in relation to cell phone towers, and that suffices for a lot of things. Weather, for instance - you don't need to know where you are on a street, just your general location. Lots of local searches don't need where you are on the street, just approximately where you are in the city. That kind of thing.
So they're just saying that true GPS is a lot more accurate but it does activate another radio in your phone that can drain the battery, and may or may not be necessary depending on what you're doing.