Your variable declarations are in the middle of the .ajax call, and are making the JavaScript structure invalid. Also, I'm not sure why you're using "function($)", normally with jQuery the $ is reserved and shouldn't be used as a function parameter.
<script type="text/javascript">
$(document).ready(function() {
navigator.geolocation.getCurrentPosition(onPositionUpdate);
});
function onPositionUpdate(position) {
var lat = position.coords.latitude;
var lon = position.coords.longitude;
$.ajax({
url : "http://api.wunderground.com/api/ApiId/geolookup/conditions/q/"+lat+","+lon+".json",
dataType : "jsonp",
success : function(parsed_json) {
var location = parsed_json['location']['city'];
var temp_f = parsed_json['current_observation']['temp_f'];
alert("Current temperature in " + location + " is: " + temp_f);
}
});
}
</script>