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Inferred city and state is pretty accurate, but can be misleading. One potential issue is that if the information is not correct and you rely on it for assigning leads via the auto-assignment rules, they could be assigned incorrectly. I don't know if I would take this approach myself. but maybe others have done so and it worked great.
We don't update our City, Stata/Province, Country, etc. fields from the corresponding Inferred fields because as Jeff stated, it may be inaccurate (e.g. when person was cookied, they were traveling or VPN'd in from their remote location, etc.), but we still use it in smart lists when the confirmed data is not available. By leaving these fields blank, you know you still need to get the confirmed info.
Technically you shouldn't see any issues.
Are you doing this to route leads based on location? Typically we set up rules to use both known location and inferred location, with the known location taking precedence.
Otherwise agreed with Elliott: better to know your data is unknown than to push uncertain data into fields.
Using inferred fields can be dangerous... let me give you an example. Before I came to Marketo I worked for a company located in Portland, Oregon. All of our networking however was done through a corporate connection in Midlothian, Texas. As a result, our IP address would always show as being from Texas when in reality we were thousands of miles away.
The way I explain it to clients is that the more general you look at inferred fields, the more accurate they are. Country is generally pretty accurate. The more specific you try to get, the less accurate it is.
Running my current IP through different geolocate services also shows wildly different results. I've seen it correctly show Portland, Oregon, I've also seen the same IP address come back as saying that it's on our ISP in Vancouver, Washington and one provider even tried to place it in Utah.