How do I use location information in Drupal?

Hey. I’m making kind of an ebay-esque site as a sample while learning drupal. One feature I want is, whenever an authenticated user posts an item, the zip code (postal code) saved in his profile should automatically be associated to the item posting. Then, users should be able to search for items by proxity to their zip code. As such I don’t think embedded maps will be required, but if they can improve the end user experience, then that will also be great. Now I found a LOT of contributed modules that deal with location awareness, and the naming and dependencies of many of them is quite confusing.
Can someone suggest the best way to get around to doing this? I’m guessing it will have to be some combination of a CCK field in item posts for location, a contrib module for adding location to user profiles, some means of automatically adding the user’s location to the post’s location, and a view or some other means of integrating the zip code into the drupal built-in search module.

I’m guessing zip code is the best way to identify locations and find proximity right? Correct me if I’m wrong. This site is gonna be specific to only one city, so coordinates (lat-long) won’t be of much use. I am very confused, because I’m not sure there’ll be any automated means of calculating the distance between 2 places using zip codes. 400099 might be closer to 400057 than 400088! Or would a better way be to let users mark their address on a map, and then store the lat-long coordinates for that, and use the coordinates of the searcher and the item to calculate distance? That seems like a more accurate way, but is there a contrib module which can do that, or do I need to code myself? Also, will lat-long be accurate enough within the city?
I know this is asking a lot, but since many of you might have already had experience with location modules, I was hoping you could suggest the best method for going about this.