Hi Joshua,
Working in different locations have been proven to be effective.
37Signals among the most
vocal advocates. The best open source projects aren't exactly written under one roof. Given that, there's quite a number of principles behind why they do it this way and why it works for them. e.g., for open source projects, people on the project chose to do what they do, they choose when and when not to work, they can choose to leave anytime without adverse effect on their lives, their work is a showcase to the public, etc. 37 Signals has some of their reasons listed in that blog post.
Of course there's quite a number of horror stories as well. Yahoo! wants to bring their people back to the office because it eroded their culture. And unofficially, tempted employees to work on non-Yahoo! projects on the side.
With regard to being Agile as per the manifesto, the belief is the best work still comes from an energised and committed team that works together in the same space. So to answer your last question, the suggestion by Agilists is to allow them to work in one place, as this is more effective.
Given you have at least two competing ideas, I wouldn't concern myself on being Agile per se, but rather would focus on what would make things better. Would allowing telecommuting make things better for you company? For your people? For your product? For your customers?
regards,
mike
by Lasse Koskela, author of Test Driven and Effective Unit Testing