I tested my device (iPod Touch 2G iOS 4.1) if location services are enabled
permitted = [locationManager locationServicesEnabled];
and I always
When you implement the delegate for location manager, you should be implementing didFailWithError. In there you will get the appropriate error if the user did not allow access to location
Apple Documentation States:
If the user denies your application’s use of the location service, this method reports a kCLErrorDenied
error. Upon receiving such an error, you should stop the location service.