My theory is that whatever background process handles Latitude updates is easily susceptible to being killed by the memory manager and does not restart itself.
I think the built-in Music Player is particularly likely to kill the Latitude process, as I have noticed that it will work fine all weekend but as soon as I leave for work it stops updating and the last known position is at home. Coincidentally I always listen to MP3s on the way to work.
Also, note that in any case as soon as you launch Map/Latitude on the handset, it starts updating again, so if you are frequently checking your wife's position via the phone you will keep your own location up to date as a side effect. I always check if mine is working by going to the iGoogle widget in my desktop browser.
I believe Latitude also starts back up when you reboot.

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