An iPad with a "retina" display akin to the iPhone (~330PPI) is nearly, if not actually, impossible to mass produce. At the current size, the closest resolution to matching the density of the iPhone is 2560x1920. The panel itself, were it to be made, would cost around $800 at least (roughly based on costs of similarly high resolution panels) in the short term. Working with such a small display has tremendous risks and yields would very low (remember the delays with the 27" iMac). Finding someone willing to mass produce such a display won't be very easy as they will certainly be assuming much of the risk; LG is already under enough fire for not producing enough of the standard iPad displays.
So if we could find a manufacturer willing to try, enough patience to wait for enough acceptable units to come off the line, and enough money to afford the display once it becomes available, you still have to contend with the iPad's hardware. This iPad retina display has roughly NINE TIMES as many pixels as the iPhone 4. Sure, static icons and backgrounds should render well enough, but apps, especially 3D ones cannot run at that resolution with the A4 SoC, at least not well. Look at PC gaming for an analog. Look at how much more powerful a graphics card has to be to run at 2560x1600 versus 1024x768. We are talking a difference of several generations. Mobile GPUs aren't there yet, not by a long shot. Using a faster one would require more power to operate, diminishing battery life as well.
The likely tradeoff would be many apps running at lower resolutions, probably even back to the current 1024x768. And for the difficulty and cost with getting that fancy high-res display, that is a significant waste. We may eventually get to the point the hardware and display can fit in an iPad at an affordable price, but we have a ways to go.
