Scott:
It really all depends upon the application at hand, the accuracy desired, and the amount the Z position the changes over the travel area under consideration.

If the "working area" is within a few tens of miles and the area is relatively flat you should be able to get by without using the Z-axis information at all. On the other hand if you are expecting to track distances in mountainous areas where roads/trails go up and down a lot then you will need to take the Z position information into account. The Z information will also begin to play an increasingly important role as the distances logged become larger and larger.

I would think that the most accuracy you could achieve would be to take the Z-axis into account in each calculation but to do the calculation on an incremental basis from sample to sample with a fairly high sample rate relative to the method and speed of travel. (i.e. How fast can the Z position actually change from one sample to the next).

You should spend some time with Google and research the subject of earth coordinate systems and conversions between them. This research will turn up some interesting material that will help you more clearly appreciate the GPS tracking process.

Michael Karas