If you want to add an ActivityIndicator directly to your button, here's some code to do this:
UIButton *button = [UIButton buttonWithType:UIButtonTypeRoundedRect];
button.frame = CGRectMake(0,0,40,40); // increase width value if you want to add text
[button addTarget:self action:@selector(buttonPressed:) forControlEvents:UIControlEventTouchUpInside];
[button setImage:[UIImage imageNamed:@"location.png"] forState:UIControlStateNormal];
UIActivityIndicatorView *actIndicator = [[UIActivityIndicatorView alloc] initWithActivityIndicatorStyle:UIActivityIndicatorViewStyleGray];
actIndicator.tag = 123456;
[actIndicator startAnimating];
actIndicator.frame = CGRectMake(7, 7, 26, 26);
[button addSubview:actIndicator];
[actIndicator release];
This shows the activity view, but you could either hide it in the beginning or toggle the activity indicator by accessing the indicator via its tag.