I leave 'wireless network' enabled at all times, so that any searches I do in the browser or what not provide location based results.
When I do use GPS I leave the wireless network enabled. No issues. GPS is spot on for me.
I have to agree. It works fine for me to have both on. If you turn off Satelite and only use network, you'll get a, "within 1600 feet" sort of circle on Google Maps, and if you are zoomed way in, it will not locate you accurately, but more likely where the tower is.
I agree also that it is used to help with local search. However, for this to work, you would also have to enable "Use My Location" under Privacy in Settings. If this is unchecked, it may affect the phone being able to locate you. If that's the case, it would be a good bug report.