That's how I naturally approach learning a piece. It's nice not to have to worry about the score.
I suspect this style of learning cripples sightreading. I've been working hard the past few months at learning to sightread, so I've been keeping my eyes on the score most of the time (occassionally taking a peek for jumps or if my hands get lost). I'm thinking that learning to sightread will help speed of memorization, since you have to digest the information in realtime sightreading, gotta be quick. If the fingers land on a wrong note, there's no time to think about it, just move on and find the next note (by feel, or if you have to peek).
In learning sightreading, looking at the notes on the page has become melded with a mental visualization of the keys I'm aiming for at the keyboard, the kinesthetic feeling of what it should feel like if my hand is in the right spot, as well as (more or less) what it should sound like. Unexpected benefits, which I'm sure help in memorization.
Sightreading aside, it's very useful to be able to play strictly by feel (though, I still visualize what's going on in the mind). Even when looking, I can only watch one hand at a time while the other is going by feel. So typically I will learn a section by feel, often I'll have a harder time wactching my hands after learning it by feel. My teacher has noticed that when I get to a tricky bit, instead of looking down I'll stare off into the distance. I think memorizing things by feel gives a more secure performance.
Steve Jones is probably right, when looking at the keyboard we're probably doing all the visualizations and feeling, not really watching the hands anyhow. Just kind of having the eyes there to be safe.