No way it will be retina. That would mean the same iPad3 resolution on a smaller screen for even higher DPI. If its maintaining the iPad1/2 resolution on smaller screen it will have higher DPI already and look sharper. Super high resolution would drive up cost, need bigger battery etc. Make it harder to differentiate from iPad3.
Yeah, I've posted this and mentioned the PPI bump on a 1024x768 display on a 7.85" display several times too (~164PPI) I believe you're right on with your reasoning.
I'm confident this device will be A5 powered. 3Xnm version is low power, plenty fast, and even used in a brand new device (the current gen iPod Touch).
That would not be sufficient for a 2048x1536 display, the A5X I believe is done with the release of the A6 series, and the latter could be candidate, but based on the decision to use the A5 in the Touch - which is likely cost related - I don't see the new Mini product getting it either.
A 2048x1536 display at 7.85" would also require a higher density panel (it would wind up being 326PPI), not sure about the fabrication constraints - I guess they'd likely use the new Sharp panels from the iPhone 5[?]