The answer depends on the sophistication of the timezone support.
Minimal - "one selection per hour.'
Looking at the original iPod, the timezone selection is simply a list of zones. Each appears twice, with a non-DST and a DST entry.
iPod (root menu) -> Settings -> Date & Time -> Set Time Zone -> (list).
Example entries:
There appear to be about ~20 pairs, so this is probably a list of "heavily populated zones". Since the built-in clock does not support auto-DST calculations, this is really a "I got off the plane and I want to hack my clock temporarily" interface.
A sizable number of rarer use cases are not supported, like non-hour offsets.
Fully featured - time zone selection
If the number if time zones is small, I would present the "Area/Location" format, sorted by standard GMT offset.
Sorting by the current offset (Standard vs. DST) is probably too much work, and the general order will be the same. Most people understand time zones enough where they can pick the correct on.
The most important factor is number of items. If the list gets very long, then you might want to used a multi-tab list, where you make a geographic grouping (or simply make the tabs group by "Area").
I am working on the time zone support of several products right now, and that is my recent experience.