Yes, perhaps it's technically possible. Apple could do this and more, if they completely ignore the cost. The fact that it's hypothetically possible is irrelevant. Do you think they can squeeze all the hardware from the MBA into a smaller shape (the iPad is well smaller than the MBA), while keeping the price of the iPad the same? The MBA costs twice what an iPad does.
What makes you think that hardware from MBA won't fit in iPad? Do you own or at least put your hand on MBA 11? (I'm typing this on it

) If you remove keyboard, touchpad, ALL of the aluminum shell of the bottom half, ports, fans, hinges, and reduce the screen from 11.6 to 9.7... what will be left? Almost NOTHING

It'll probably fit in iPhone

But it's no question it'll fit in iPad 2. Especially that it has flatter profile than iPad 1, so probably even more internal volume.
What makes you think that Apple won't offer iPad 2 as a "high-end iPad" alongside with (slightly reduced in price) iPad 1?
MBA 11.6" 1.4GHz 2GB/64GB = $999
Compared to iPad 64GB WiFi @ $699, the $300 difference includes faster 2-core processor, 8x the RAM (2GB vs 256MB), GPU capable of driving 6.5x more pixels (5.15MP vs. 0.8), larger display, built-in keyboard, glass touchpad, 2 USB ports, DisplayPort, web camera. Not too shabby.
So why can't iPad 2 with 2048x1536 resolution be priced at, say, $899 for 64GB, $799 for 32GB, $699 for 16GB, alongside with iPad 1 at $599 for 64GB, $499 for 32GB, and $399 for 16GB?
Can you answer all these questions?
