This is a real issue on the ipad 2, its more obvious on movies were the black bars are encoded into the image, you can see they are gray and not black. It is the same effect as increasing gamma in profile settings on mac desktop, as if a wrong profile is applied to the video.
This does not happen on ipad 1, if you compare video between the two it looks much better on ipad 1, with ipad 2 washed out.
It seems limited to video playback, photo displays are fine and apps in general, so seems a software issue with videos, and not a general ipad hardware issue, hopefully Apple will fix this