You really don't think Apple is going to double the resolution of the screen? They would be crazy not to.
Regarding your comment about resolution... lower resolution images can most definitely look worse on a higher res display because of the up scaling necessary to allow the image to display. If the higher resolution is not an exact multiple of the lower resolution image, there will be a loss in image quality due to the conversion (the image will be less accurate).
Most importantly, software developers who want to continue to be successful have to put the time into updating their apps for higher resolution. As for the transitional period, because Apple will be doing the intelligent thing by quadrupling the number of pixels on the screen, they will avoid the problem of existing iPad2 res apps looking bad on the higher res screen because the new resolution is an exact multiple (This is the same exact thing that happened between the iPhone 3GS and the 4). The other advantage to a direct multiple is how much simply it makes the coding process for software developers. They can simply build on the graphics they've already developed.
Upping the resolution will provide many advantages including native 1080p viewing, superior small text definition (making for a much better reading experience) and most importantly, it will catch Apples display tech up to the competition so that Apple is on top again across the board component wise for their tablet.
Wow, you completely misread everything I typed.
First, I think do think Apple is going to up the resolution, but I don't think they're going to have black bars or whatever like the OP said (that is what's "never going to happen"). Also never going to happen is that Apple forces developers to develop for another screen size. It's going to be double resolution, or nothing. Period.
Secondly, when talking about lower resolution images looking worse on higher resolution, I was speaking if the pixel count is doubled. For example, if you put a 1024x768 image on a 2048x1536 screen, full screen, then the resolution of the image will display just like if you had a 1024x768 screen. Sure, it wouldn't look as good as the 2048x1536 image, but it wouldn't display WORSE than a 1024x768 image on the same res screen.
Like when the iPhone 4 came out. People that didn't update their apps still had their apps show up as if the res on the screen was the same as the 3GS. The images didn't look worse on the iPhone 4, they looked the same as the 3GS, until they were updated.
So what I'm saying is if, let's say for the sake of argument, a movie has a resolution of 1024x768 (humor me). You watch it on an iPad 2, and compare that movie, still in that resolution, on the iPad 3, at 2048x1536. The movie would look exactly the same on both screens, because the resolution and the size of the screen did not change.
Now, if the screen was larger, then yes, the movie would look worse. But on a same size screen with double the resolution, it would look the same or better, but never worse.
Again, maybe there is something that I don't understand about the way this works, so I could be wrong, but logic tells me that I would be correct.