So now it's getting confusing.... with Notes 8.5.2 (and earlier versions), the Sametime server field has disappeared from the Location document... not sure exactly when this happened (i.e. which version) but in my reading I came across this useful link which explains some of the mystery. I still could see the Sametime server field in the Location document but only looking at properties.
Regardless of all this, it is my understanding now that with respect to the ST embedded client, the location document simply is a holding place for the Sametime server name and nothing more. The actual place where it is set and where it matters is in the plugin_customization.ini (for new installs only), the desktop policies and in the corresponding community-config.xml file that is created under "C:\Lotus\Notes\Data\workspace\.metadata\.plugins\com.ibm.collaboration.realtime.community.sametime". This XML file is the important file and is what gets used for the corresponding preferences settings.
The confusing thing to me is now where the Sametime server name comes from when using Desktop policies as there are two places in the Desktop policies where you can set Sametime server name.."Desktop -basics" and "Desktop - Preferences - Instant Messaging".... and then there is the plugin_customization.ini which holds a value that is only used when the client is installed (or when you delete the workspace directory).
I have a PMR in with IBM to have them explain which field is used and when..... watch this space :-)