I don't think Apple is 'deliberately slowing down' anything, but rather, they aren't all that concerned with backwards-performance. Each new OS revision is designed to take full advantage of the latest hardware.
That said, I have an iPad 1 running the latest variation of iOS 5 (iOS 6 isn't compatible with the iPad 1). 64GB + 3G. No desire to get rid of it at all. However, if I understood you right, you want to trade a 16GB iPad 4 in PLUS $300? That seems steep. Your iPad was, what, $400 new? His was around $700. So.. you are basically paying full brand-new price for that iPad 1. Better off selling your iPad 4 and finding a refurb iPad 2 or even 3 for that price. Personally, I think an iPad 4 16GB for an iPad 1 64GB is an even trade. I'd rather have the 64 gig iPad 1 myself, but value wise, I think they are worth about the same IMO. In fact, mine even has 3G ($829 new), and I don't think I'd be able to get more than $400 for it. There are a LOT of these things out there...
I use my iPad for web surfing, watching videos (Hulu, Netflix), reading, taking notes, as a big PDA (calendar, etc.), games, all sorts of Apps. I use it all the time. I'd like the 4 for the retina display and LTE, but, I'm in no hurry right now. It still works great. In fact, I was more 'ready' to move on to the iPhone 5 from my iPhone 4 than I am to move on from my trust old iPad.
-John
EDIT:
Here;
http://www.geeks.com/details.asp?In...C497LLA-PB-B&gclid=CJyrz5f6rLUCFSNqMgodQHEAxA
Quick google search reveals a first gen 64GB refurb for $300. So take the $300 you were already going to spend, and just BUY a 64GB iPad instead of getting royally ripped off in that trade. Then, sell your iPad 4 and come way out ahead. I bet you could get $300 for your iPad 4, so you'll come out without spending a dime on the switch...
The more I think about the deal you've been proposed, the more I think you are getting ripped off big time...