Looks like iBooks 1.1 includes references to x2 iPad graphics, shorthand for Retina Display graphics that would peg iPad 2's screen at technology-bending 2048x1536. That's precisely double the current iPad's 1024x768 in both dimensions, and precisely what Apple did with iPhone 4 last year. (Doubling the pixels is the easiest way to keep existing apps functional and prevent fragmentation and mass developer angst.)
Doubling iPad 2's resolution would result in a 260dpi display, not as sharp as iPhone 4's 326dpi. As we've said many times, Retina Display is dependent on distance and most people hold an iPad further away than they do an iPhone. So 260dpi should be effectively similar if not the same.
But 2048x1536 is more pixels than the $999 Apple 27" LED Cinema Display, in a smaller area, and in a device that with all other components -- including the rumored Apple A5 chipset powerful enough to drive that many pixels -- starting at half the price.
I'm still not sure that technology exists at that price point. I am getting slightly weary of the back and forth rumors though, so hopefully Apple announces their iPad 2 event and Steve Jobs puts this to rest for once and for all.
Meanwhile, speculate away. If Apple puts their mind and supply chain to it could they get this miracle of glass done?