The iPad's screen is relatively low resolution, just 1,024 x 768 pixels. If you're watching a moves in widescreen with letterboxing, these screenshots from the A-Team trailer from Apple.com make it clear there's little difference. When zoomed in, however...
These are the original PNGs screenshot from the iPad, but obviously they've been compressed in our publishing tool. (You can click them to zoom in on the uncompressed original PNG.) I didn't add a caption so as not to send them through another JPG or PNG compression.
The top image is 480p widescreen. The second is 720p widescreen.
Bear in mind also that a "720p" trailer for a 2.35:1 movie from iTunes actually is only 1,280 x 544 pixels—they don't bother encoding the black bars that would be there on a 16:9 screen. Same with "480p"—it's actually 848 x 352 pixels.
To my eye, unless you are zoomed all the way to fullscreen, there's little appreciable difference between the two. Zoomed in to 4:3 you can definitely see more detail in edges and the like, but in motion it isn't nearly as obvious.
Again, 480p zoomed is on the top, 720p zoomed is below.
If you've got the space and a real keen eye—and love zoomed in 4:3—then you could go with 720p, but for most needs and for most people, 480p is fine. It's going to be squished into that 436 pixel space no matter what. For 16:9—more common in HD television—you might be able to more easily tell the difference.
Here's the thing: I think you should just use 720p for everything. It's a nice resolution that's going to look good—or good enough—on everything from your iPad to your HDTV. But you don't always have the luxury of a high-def source. Plus some people need to squeeze out every last megabyte of space they have. If you're one of those folks, hopefully this buys you a couple more hours of video.
Want to know how to encode your own videos for iPad? It's easy.