I'm wondering the exact same thing-both for my iPod touch, and the iPad I may soon get (or for that matter if I get an iPhone 4 instead).
I convert video from my Tivo using the built in preset in Handbrake on Windows, except I bump the audio from 128Kb/s to 160, since that seems to work, and why not?
But fast action even on my 480x320 iPod isn't flawless-it's good, but it could be better, and I'm sure will look much worse on an iPhone 4, let alone on an almost 10" iPad.
So what the heck are iOS' bit rate and video limits? This seems like something Apple would just tell us-and maybe they do, but I don't know where. I hate trial and error where I spend an hour encoding a show only to have it not run. (Heck, ideally I wish they could just support the MPEG2 ATSC broadcasts directly from my Tivo...save the trouble of transcoding, and they'd be super high quality.)
EDIT: Heck, I don't even know what RESOLUTION iOS can handle. I mean it SEEMS like you ought to be able to do at least the iPad's native resolution on any of them at a high bit rate. Although it's silly, I could actually see myself finishing up a show on my iPad at night before I got to sleep, assuming the internal speaker is loud/good enough (the iPad one is kind of quiet/lowish quality).