It would be cool if the "radius" automatically scaled to ensure there are not too many or too few people in the chat. This could be accomplished with a Voronoi diagram.
hmm, the 1 mile radius is important to me. psychologically, knowing that the people you're talking to are within walking distance is exciting
Alternatively, a neighborhood/borough mode might be an interesting adaption that would let you shrink as you scale. In New York, maybe you only talk to people who are also in Brooklyn. Or just Nearby parts of Brooklyn (mash up with that app that allows you to see how far you can get in a time period). In North Dakota, you might have a much much bigger region.
This would also avoid the issue I have playing a game with a geolocation based chat on android, wherein I am in the Financial district in SF, and see "nearby" people in Oakland, when I would have to cross the bridge/take bart there.