I can verify this is the case. I have Final Fantasy III on iPad, which is a native Retina display app for iPhone 4, and it only displays with iPhone 3GS graphi

I can verify this is the case. I have Final Fantasy III on iPad, which is a native Retina display app for iPhone 4, and it only displays with iPhone 3GS graphics in pixel doubled mode. This is unfortunate, and I think you're right. The iPhone 4 does have better graphics hardware than the iPad 1. It would be interesting to see if iPad 2 could overcome this limitation. Judging by the video I saw of an iPad 2 outputing 1080P to HDMI at 60 frames per second running Real Racing 2 HD, I would say that the iPad 2 has the graphics hardware to handle actually scaling a native iPhone 4 retina display app to it's own resolution.