As for typing in the location bar, there is a kind of autocomplete/tab completion mode which is really useful. The behaviour seems to have changed in more recent versions, I think the tab key doesn't work now, as it's a UI control to move focus. I prefer the shell style tab completion, but nonetheless it's a useful feature.
Which reminds me that navigating around nautilus with the keyboard is really a bit of a pain. To be able to do this easily would really help. I noticed in Mint's nautilus the last time I tried it arrow keys would let me move back and forth between the sidebar and the file lists, it may not be the right key to do it - but makes using the file manager much easier.
Second thing to consider is how it's going to work on the file systems with lag. Anything over-the-network. Not only moving the cursor left and right would generate a lot of traffic, it would also fail to provide feedback comparable to that of local drives.
Third, take a step back and think who would actually use this. For example, the only time I use Location field is to copy current path to be pasted elsewhere. I tried remembering when I actually typed anything except for c:\temp in there and I can't. I'm sure there are people who do type in long paths, but the question here how many of them are there and if the UI should be optimized for their usage. If they comprise a percentage point, then clearly all this optimization is pointless -- it may very well still exist, but it should be off by default. In other words, as nice as this exercise is, it jumps to the design phase without first defining the problems it is trying to solve nor its target audience.
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As others have noted W7 has something similar in Windows Explorer, but the field switches between the breadcrumb and text input modes. This looks like a sensible solution, and yet I personally find it fairly annoying in a day-to-day use.