National Geographic has an interesting article on amnesia's effect on imagination . Apparently, people who have suffered amnesia also have difficulty envisioning future scenarios and imagining simple scenarios, such as lying on a beach. Spacial context, generally thought to arise from the hippocampus, seems key to this inability to remember and imagine. The amnesiac patients studied had damage to their hippocampus.
It does seem to make perfect sense. After all, memories are fluid imaginations of past events. Each time we recall a particular moment we are vividly imagining the location, sights and sounds that accompany it. In some sense, we are recreating the memories anew at each recall.
It would be interesting to know how this would correlate to those with Alzheimer's. So often, advanced Alzheimer's patients can become lost and disoriented. I wonder if the same inability to remember new information and to envision oneself in a particular location is related to the hippocampus in the same way as it is in this study on amnesia.