[scrabble]

You could just grab user location and populate it in a db. Use a proximity search to see which users you see and see you.

You could also break things down by geofence, but that would work better for a city chat since there would need to be overlapping fences otherwise you could be next to someone and not see their messages.

There are other ways to do it, but if you are going to use Internet connectivity, that's the simplest I believe.