You hope ;) Significant location change is based on cell phone towers. The update only seems to happen when you switch towers or are switching between towers. Less towers = less accurate, more towers = more accurate.
You are totally correct. With iOS 4 the significant location changes API can be trusted with distances around 1 mile / 1.5 kilometers. Anything below that and you don't have any guarantee.
My first version was only using significant location changes and after a lot of users
feedback, the second release was improved dramatically by switching the way I was using the significant location changes API and some other GPS API: the app now has a better accuracy and the feedback from my users has almost disappear.
Anyway congrats for the OP to ship his app! Enjoy the ride in the AppStore.
Also, a kilometer is optimistic, good test and article here describes what was discovered when iOS4 came out. http://longweekendmobile.com/2010/07/22/iphone-background-gp... iOS 5 is now in beta, there may have been improvements, can't say for sure.