Ken, I haven't seen this behavior but I need to try an example. When you create a report and add the location dimension are you adding a level of a hierarchy, an attribute of the dimension, or are you manually selecting the members? If you're manually selecting the members than what you are seeing makes sense. With either a hierarchy level or a dimension attribute, I would expect the resultant MDX to be something like .Members so that new ones would be picked up automatically.
Another possible issue is caching in PPS. Have you restarted the PPS Monitoring service to clear the cache and then rerun the report?