I think I may have found the critical thing that was preventing the “Reset Privacy and then reboot” process from working for me.
I went to the settings and tuned off the automatic setting of the time. “Settings -> General -> Date & Time -> Set Automatically”
Before turning that off, resetting the location and privacy settings and rebooting frequently did not get the interaction with the external GPS working again. I would happen on occasion, but rarely after the iOS 6.0.1 update.
Now it seems to work every time.
My conjecture is that when the iPod Touch restarted, and it saw that it had an internet connection, it quickly tried to set the time based on my current location. In other words, it was accessing the location without asking my permission, or telling me that it was doing so. It just assumed that it had permission. In the rare cases where it didn’t do so before I started CoPilot Live or Waze, then they would work until sometime later when a lager application would “hog” the location info.
Can anyone else confirm if this helps, or if they have this setting turned off as well?