The main problem here is that, the memory on an iPad is not cheap, and it is not expandable If you use an all-in-one player without conversion, you will need to buy the largest iPad there is to store just a few HD movies. If you do the conversion with settings optimized for iPad viewing, you can compress the video even more. Also, the video files you put on iPad don't need to be the same as the iPhone version, the iPhone version can be compressed even more than the iPad one, so they take up even less space.
If iPad had a SD card slot, I would agree with you, because you can just take as many SD cards with you on the road as you like. But right now, the offline conversion is the best option.
I believe 3-4mbps is the video bit rate iTunes use for their HD movies (720p), which is good enough for iPad and ATV. Also if I want to enjoy the movie in the director's intended AR, then I would want to watch it on my HDTV instead.
Alternatively, you can use a host-based video player like Air Video, so you can either stream the video off the host or convert it in offline mode for offline viewing (pretty fast). Best of both worlds.