Radio Frequency IDentification (RFID) is a rapidly developing wireless technology with key features which anticipate its outstanding position in the upcoming era of pervasive computing. Even though object identification is its primary objective, it is generally accepted that RFID systems can revolutionize various commercial applications. Despite its promising benefits, however, there are some technological challenges that should be addressed in order to exploit the full potential of RFID. Admittedly, the interference problem among its components and from non-conductive materials is the main shortcoming of RFID. The main goal of this paper is exploring its applicability for indoor location sensing, an important feature for the realization of ubiquitous computing applications. To that end, we study the impact of several interference types on its performance. Focusing on the case of determining the location of mobile terminals with reader extension by relying on a deployment of tags, we consider three RFID positioning schemes which are easily implemented but differ in their memory and computation requirements. Mathematical models are derived for describing the main interference types and their influence on the accuracy and time response of these schemes. Finally, extensive simulation analysis is conducted for exploring the practicality and efficacy of RFID for the localization of single or multiple users under different levels of environmental harshness. Numerical results validate the potential of RFID in location sensing but also the requirement for careful design of RFID-based positioning systems.