The hardware is massively more capable. There's a few things stopping devs from really pushing it though:
- Lack of customers. iPad 1 still outnumbers ipad2 maybe 5:1. That means if you target ipad2 only, you target 1/6 of the market, and get 1/6 of the sales and 1/6 of the potential chart rankings. That's not all that appealing if the devs want to get paid
- For most games, it's not necessary. Would angry birds be better in 3d with fancy lighting and shadows?
- Lack of skill/time/manpower. Writing games that really push the hardware is hard. Not that many developers can do it, and it takes quite a bit of time and effort. If you have a big, highly skilled team like epic, then yeah you can make infinity blade. For the smaller companies, they have to be a bit more realistic about what is achievable.
On that last point, how many games really push the ipad 1's hardware? Infinity blade I would say does, real racing, perhaps a couple more? That's after a year. The ipad 2 has been out a few months, and I don't think *anything* really pushes it yet.