Update
By experimentation, I have figured out that the best format to play a movie on the iPad is 720x576. This is at least true for using iSkySoft to convert full DVD's into mp4's. It is of course possible that other converters work differently, so this is not something to assume for all programs.
720x576 is a 1.25:1 ratio. Any radio larger than that, 1.333:1, 1.5:1, 1.777:1, will result in a significant loss of picture on the edges of the screen. Handbreak's default format is 720x480 which is a 1.5:1 ratio. You will lose a significant portion of the image width. If you compare image displayed on your computer monitor to what your iPad shows, you will see what i mean.
640x480 is a 1.333:1 ratio. The loss of image there is not very significant, and i know that is an option in Handbreak. so if you really care to see more of the picture i would suggest using that setting.
Andy