NOTICE: You now can do it with whatsapp self! See:
I know it's a bad video... but you can swipe te marker to any location. and then press send location above the marker

NOTICE: If you have upgraded to Whatsapp 2.8.22(the update from near 18-11-2012) or above the Fake GPS location doens't work. (Whatsapp changed there protocol). When we find out how the new protocol works, I'll fix it here!
Send a fake Whatsapp location

International mobile number with country code, without '+' or '00', e.g. 31612345678 (31 = country code, 0612345678 = phone number, without leading '0').

iPhone: Settings -> General -> Info -> Wi-Fi Address
(example: 68:12:1A:31:F3:4D)
Android / Others: Settings -> About Phone -> Status -> IMEI (IMEI can also be retrieved by dialing *#06#)
(example: 981326123914316)

You can drag the marker to anywhere in the right map!

Same format as your number

map div

Drag te maker to anywhere to set your location.