My take on it is that for the long term, it's a Very Bad Idea(tm). Circular dependencies in code usually indicate that parts of the code (as you mention) are in the wrong place.

For the short term, however, it's not a bad thing. If you're repairing code, then I'm a fan of slowly improving the codebase step by step rather than changing everything willy-nilly. Take the most annoying problem, and fix it. Then polish up the edges a bit. Rinse-lather-repeat.

Circular dependencies may not be your worst problem, so it's not necessary that it be the first cleanup you make. However, if it were me, I wouldn't stop the process until I got rid of them.

...just one robot's opinion...

--roboticus