I think it's a good idea. I'm from Upper Hutt and do not feel this should be secret information. If members want to hide the city they are in is it because they are embarrassed by some of their posts? I have had second thoughts about some of mine. If you say you are from Auckland for example you aren't exactly publishing your credit card number on the internet. If you are from a small town then perhaps put the region e.g. Taranaki is better than nothing. However if the information was required and people entered a wrong city than that would be worse than none at all.
Perhaps user names could have a rating value shown next to them which is based on the amount of information they provide about themselves.
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