I'm not sure why I had trouble the first time, but I likewise was able to run LapTimer succesfully with Location Services turned off. In fact I had to turn it off in order to get the Dual XGPS150 to communicate successfully with LapTimer. This has happened intermittently when I have altered settings...

I am using a Dual Universal GPS Receiver with my iPhone5. When I turned Location Services off, HLT no longer had access to the GPS information from the external GPS receiver. Per Harry, "LapTimer will turn off the internal GPS once it connects to an external GPS."