All we know so far is this tidbit from Apple's site:
Back camera: Video recording, HD (720p) up to 30 frames per second with audio; still camera with 5x digital zoomWe can infer from this that the rear camera sensor is capable of at least 1280x720 pixel resolution. However, it's reasonable to assume that still photos will be cropped to 960x720 (like the current generation iPod Touch) to make them the ratio common for digital photos (4:3).
If that's true, then the iPad will have a higher resolution LCD display (1024x768) than the photos it takes (960x720). This is almost certainly a first. Camera sensors have always had a much higher pixel density than LCD displays. The iPhone 4's display might be impressive at more than 300 pixels per inch, but even the first consumer digital camera sensors had much higher pixel density than 300dpi.
Thus, an early DSLR like the Nikon D1 had a 2.7 megapixel (2,000×1,312) sensor but a puny 120,000 dot (400x300) rear LCD. The very first digital camera marketed to consumers in the US, the Apple QuickTake 100, didn't even have an LCD display because small LCDs at the time were prohibitively expensive.
Are the photos taken with the iPad 2 going to display with black bars at the top, bottom, and sides? Normally one needs to dramatically downscale digital photos to display them on the LCD of the device that took the photo (I can't even display full-resolution photos from my iPhone 4 using my 27" Apple Cinema Display).
Apple are certainly pioneers in digital photography, but in this case that's not a positive thing.