Claims that the iPad 2 will have an iPhone 4-style Retina Display have come under criticism, with insiders suggesting that the second-gen iOS slate is more likely to stick with the existing 1024 x 768 resolution. Daring Fireball's sources deny the possibility of a "super high resolution" screen, such as the tipped 2048 x 1536 panel, though suggest it's possible that Apple could have refined the production of the screen "making it look more like pixels on glass rather than pixels under glass."
The necessary hardware for such a high resolution is one point of contention; the rumored dual- or quad-core SoC with boosted graphics shouldn't necessarily struggle, as long as they're paired with sufficient RAM, but a suitably high-resolution panel is said to be "cost prohibitive today." As for a third, in-between resolution, that would throw up issues for iOS developers having to develop a third version of apps to suit.
According to Jon Gruber, there are already 2048 x 1536 iPad prototypes in Apple's Cupertino labs, but they're not iPad 2 prototypes.