Can't say that I've never done it, but don't care for it. People feel spied upon enough, and when they see ads targeted right to their hometown it will spook a lot of them right off the site. Nothing wrong with it, but even a warm welcome thanking them from visiting you from Wherever, USA might fall create a feeling of "You have more information than I am comfortable with."
Most IP targeted content is served up in a way that is subtle, and that is the smart play at this time, IMO.
People have no idea how much you can learn from just a single visit - and wouldn't like it. I have no problem with it, but the average person I think is not ready.