Reading this Meta Stack Overflow post, it seems the Stack Exchange team did a one time best guess at your actual location using a Yahoo location service and if it found a match from what was currently in your profile, it updated it to a "proper" formatted place. If no match was found though, it left it as it was.
I'm not sure how it got Liverpool from Wirral since that seems to return The Wirral as expected, but it looks like the Stack Exchange team did something extra because if you put my location (East Angular, United Kingdom) you get back a result, but my location was not changed. This is only a guess, but the team may have a threshold on the
<quality> XML tag that is returned, since mine is only 9 but Iain's is relatively high at 63.
The Stack Exchange team made it pretty clear that this was a one time update, and if your location was incorrectly changed you are free to change it back and it will not be altered again.
I would have posted this yesterday, but I was on my iPhone and adding answers is a bit more difficult on that, hence just the comment.