I bought an iPad 3G a couple months ago, and got my iPhone 4 at launch. Initially, I also found that the iPad was harder to look at after getting spoiled by the iPhone 4's Retina Display. But I'm used to the difference now, and for me the two devices compliment each other very well.
First off, the proper viewing distance for an iPad is quite a bit more than the iPhone. You just don't need the iPad so close to your face. Once you increase the distance a little, you'll notice the pixels fading from view and the whole experience will be better. So my suggestion with the iPad is to sit back, relax, and read it like a book. Blow up the font a little if you can, and increase the viewing distance. You've got more screen real-estate to work with, and a larger display. Use it to the fullest.
When I'm watching a movie, reading a lot of web pages, or doing a significant amount of work, the iPad is my go-to device. I can't imagine watching a full movie on the iPhone anymore, even with the Retina Display, unless it's all I have with me. Sure, I've got a few good movies on the iPhone to show it off, and maybe watch a favorite scene or two, but for extended viewing, there's no question that a 10" display beats 3.5" display. And the iPad still does have more total pixels.
I also still find web browsing much better on the iPad. Sure the Retina Display lets me see the whole page legibly now, but I'm still going to be pinching in and out to tap buttons and do any serious reading. With the iPad, I just browse.
Typing is also easier on the iPad, and when I'm doing serious content creation, I bust out the Apple Wireless Keyboard.
Though when I'm out and about, I often leave the iPad behind unless I plan to do serious browsing or work. In those situations, the iPhone 4 is terrific enough to make me not miss the greater roominess of the iPad so much.
I also segregate my apps between devices to some extent. There are some apps I have on both, but in many cases I just go to my iPhone for certain things like Yelp and Twitter, and reserve the iPad for more heavy-duty functions and certain games. I don't try to have both devices do everything. Also, on the iPad it often makes sense to just use the web browser for things that, on the iPhone, are better in a dedicated app. Facebook is a prime example.
Lastly, I occasionally find myself multitasking to another level with both devices. For example, I might be writing a draft report on my iPad, and viewing a related email or reference document on my iPhone.
Having both devices doesn't make sense for everyone, but it sure does for me.