Also, how do laws treat waves in public (radio, light) - do they get the same "privacy" treatment as people (that is, no expectation of if in public)?
Edit: actually since joining/browsing an open WIFI network can be considered criminal...
I believe this area is legally fuzzy but courts have determined that police cannot drive around with say, a thermal imager and observe en-mass people in their homes. One could argue that it's just thermal radiation you are viewing from public space.
It seems to me that if you really want people to slow down near the elementary school (as opposed to just issuing tickets and collecting fines), this is EXACTLY what you want to have happen. If you put a cop there, and people warn others of it so they all slow down... mission accomplished!
By analogy, if you've got a target very valuable to the enemy (maybe a stadium for a high-profile sporting event), having phones alert users that they're being monitored might help to ensure that nobody tries anything during the event.
To be really effective, it would be seem specific and personal: text messages that say things like "We can see you. We know what you're up to." Stuff like that.