This is the year of location apps at SXSW, and the frontrunners are Foursquare and Gowalla. Though Gowalla took away honors in the web awards, TechCrunch is saying it’s a dead heat between the two apps in terms of who’s using which to check in at the city’s myriad venues.

The hype is no doubt of tremendous value to these apps’ developers. With Foursquare and Gowalla still fairly new to the social media market, the buzz is not only great publicity, it’s serving to crowdsource some R&D.

Think about it: thousands of tech experts all in one place, the vast majority using your software in a completely organic setting and talking about it constantly. If you’re thinking of launching an app in the next year, time it with SXSWi. It also worked for Twitter three years ago.

Foursquare and Gowalla each held competing parties last night downtown, despite spirit-dampening rain (which is supposed to continue today — argh). Celebrity tweeter Ashton Kutcher was reportedly the toast of Foursquare’s party at the Cedar Street Courtyard.

Meanwhile, blocks away at the Belmont, Diplo performed a DJ set with fire dancers before a “crazy-packed” house, according to our leader Shannon, who was lucky enough to get in. (Even on a Monday night, getting into SXSW parties can be a crap shoot.)

Meanwhile, Concert Chris and I hit up the British Music Embassy (a SXSW-only pop-up venue that takes over one of the downtown bars) for a lineup consisting of a bunch of crazy Euro bands, including a Dutch instrumental surf-rock trio, plus solo performances by Foo Fighters guitarist Chris Shiflett and the always inspiring Billy Bragg. Chris and I cornered Mr. Bragg after his rousing set (to which many sang along to his bigger songs) and made him sign posters we picked up. He was most gracious. Geek central!

I took the above photo in the corridor at ye olde Embassy. More to come.