We just compared our current location (via GPS) with the result of the My Location service and calculated the distance. We did 132 measures.
Here's the result as a graph:
To summarize, My Location is 707 meters inaccurate on average.
80% of the measures are less then 1075 meters accurate.
So this is (of course) far away from GPS based LBS, and it depends on the use-case of a service if this is sufficient.