I think the problem is that such an app tracks the location of the user and location specific ads will constantly remind the user that their physical location is being tracked.
This is an obvious privacy and security issue but I also think Apple wants to prevent users from experiencing that creepy feeling that comes from knowing somebody is tracking you against your will.
In order to feed the iPhone location based adds, you have to upload the location of the iPhone to a server, process the appropriate adds for the location and push them back. That means that an external 3rd party, that neither Apple nor the user can control, is constantly tracking the location of the phone while the app is active. Since an app can capture info identifying individual phones, that turns the app into spy program.
Even if you actually did all the processing inside the app on a single phone e.g. looking up an internal local database, the user would still most likely assume they were being tracked remotely.
There is no way Apple will risk the damage to the iPhone's brand that would come from news stories screaming, "iPhone App Secretly Tracks User's Locations Anywhere in the World!"
The library you have in mind is clearly verboten. You could might get way with it if had a mechanism for constantly asking the user if they wanted to load location specific ads.
(BEGIN RANT: As an aside, I would say this sounds like something the explicative-deleteds in marketing came up with. They think "Hey, we can push location targeted ads at users and force them see those ads when they use any of the apps with the library! Think how great that will be for advertisers!"
Marketing driven design is almost always a disaster. If they started the design with the idea, "Hey, I think I as a user would like to have the option of seeing ads relevant to my location with a mechanism I control and which protects my privacy and security," then they would come up with a much better library.
In the long run, you make money by giving end users more power and control over their work and lives. You don't make it by strapping them down and force feeding them what you want.
If you personally wouldn't want the functionality and no users have asked you for the functionality, then its probably a bad idea. END RANT)
Edit01:
Let me address this:
So from one point of view we are
advertising a cafe, but from another
point of view we are giving the user
an advice about places to eat around
him. So what is the border between an
ad and advice to a user?
I used to work at Apple in several capacities so I understand a bit how they think.
An ad is something pushed onto the user with any prior action of the user's part. The user doesn't request the ads, doesn't select the ads may not even want the ad but they just appear anyway.
Advice is something the user ask for explicitly. An app with a button that says "Show adds for businesses in your immediate vicinity" would fall under the heading of advice. Even an app whose stated function was to show adds for businesses in the vicinity would be fine. In both cases, the user request specific information. It is not pushed onto them. More importantly, the user can control if they send their location or not.
I got caught in the nutcracker back when Apple thought it was a good idea to have dialogs popping up telling people how to upgrade to Quicktime pro. It caused no ends of problems for end users especially those in institutions because it took control out of the hands of end users and administrators. I got to stand between irate customers and the genius that thought of the idea, which turned out to the actual genius Steve Jobs. Eventually, he saw the light and the desktop ad experiment was terminated.
Jobs and Apple learned their lesson. Don't force ads on end users. Especially don't tie ads to the functioning of the software (in this case, the location manager.)