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Does the iPod touch have a GPS? If not how, does it know where it is and how dependable is it?

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The iPod touch does not have a GPS. Finding your iPod Touch through MobileMe requires that your iPod Touch has Wi-Fi turned on and connected. It uses Wi-Fi triangulation to find it.

It is not as accurate as a GPS, but if your iPod touch is around many Wi-Fi access points accuracy will go up.

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