I've had two run-ins with police while geocaching. I'm twenty, and I usually geocache with a group of friends around my age. A bunch of teenagers/young adults snooping about is bound to look suspicious to any police officer, so I'm not really surprised that we've gotten stopped. Each time I just explained what geocaching is, maybe showed then the cache and logbook if we found it, and they let us be.
There was one occasion, however, where a mall cop came back after we left and took the cache. It was a P&G under a lamp skirt, and thankfully the CO replaced it within a few days. Made sure to note in my log that the muggle was probably the officer we had talked to. Oh well, what can you do.