Alright, I've reproduced the issue a few times. If anyone else can confirm, I'll post a bug report. Here's how I did it:
(1) On your device, start with wifi ON and GPS OFF.
(2) On another machine, log in to the Cerberus website/dashboard:
https://www.cerberusapp.com/
(3) Under Command on the dashboard, select "Start tracking" and press the "Send Command" button.
What happens on my Droid 3 (Gingerbread...yeah, yeah, I know...Gingerbread...):
(1) The two GPS icons show up in the notification bar: bullseye icon (on the right) and "satellite dish" on the left
(2) Since GPS is off, the satellite icon shows up with an "x" on it
(3) About 10-15 seconds later, wifi turns off
(4) A few moments later, wifi turns back on, but the last connected router shows up as a "disabled" network (connect fails)
(5) The phone seems to cycle back and forth between trying GPS and restarting wifi
(6) It seems to fix itself a few minutes later, presumably when the "Start tracking" command fails (you can also send a "Stop tracking" command).
I might also note that I'm behind several layers of concrete ATM, which could be adding confusion to the GPS. I'm also running Backitude, which tries to steal location updates and might be adding to the problem (I notice each time that wifi turns on/off Backitude tunes in for a moment). Finally, I'm running a power-widget that automatically turns GPS OFF -- maybe Cerberus tries to turn it on and the power widget turns it off?
EDIT: Hmmm, this is odd. Tried the obvious trick of turning GPS on, and then selecting "Start tracking." Since I'm far from a window, GPS icon shows up like before (with an x -- OH GEE I just realized that the icon I'm describing is probably a notification from GPS Status that it's searching for signal. ARGH, sorry if I'm making this too complicated.)
-Matt