I don't think it ever worked properly...iOS5 or otherwise.
It depends on your definition of "properly".
Auto brightness on iOS has only even turned brightness
up. iOS will not reduce display brightness if you move from a bright room to a dark room with the device on.
It only reduces display brightness:
- When waking from sleep.
- When using the device from idle. (screen dimmed after a few minutes)
It does not, and has not ever dynamically adjusted brightness continually in the way that MacBook Pros do.
In iOS 6, they seem to have made auto brightness more gradual, and it tends to avoid instantly going to full brightness now. In iOS 5 my iPad would get too bright, too quickly.
It should also learn from you. If you find that the iPad is too bright, or too dim in a specific situation and you adjust it, it should then know "in this level of light, I should change to this level of brightness".
You can quickly adjust the display brightness by bringing up the multitasking bar and swiping right.