There has been weird rumors going around some blogs that iPad2 would use a 2048×1536 display.
As Pixel Qi provides 3x higher resolution in reflective black and white mode, that should basically serve the marketing tag line of a pixel density that is "Retina display".
iPad is very heavy at 680 grams. They could significantly reduce the battery weight using a lower power Pixel Qi display, thus saving on the weight of the whole device.
At CES 2011, Pixel Qi announced that they have a manufacturing partner making 9.7" Pixel Qi screen. If that means Apple may be using it, and if Apple only wants to work with LG to make their iPad2 screen, that could mean that the new manufacturing partner would in fact be LG, and that would mean Pixel Qi may have reached out of Taiwan into South Korea as well.
Some bloggers complain about the quality of colors on Pixel Qi screens, describing them to be "washed out". I didn't ask Pixel Qi about their color mode quality, but I believe this is only because the screen coating is anti-glare Matte type which is the only correct way to use this screen 100% outdoors and for e-reading. While iPad1 and most other devices use Glossy type screen those have lots of glare and reflections when used outdoors.
Apple has the opportunity to make of Pixel Qi a mass market screen technology, they have the opportunity to use it for allowing their customers true use reading e-books without the eye straining of a back light, they have an opportunity to launch an iPad2 with 20 hours or longer battery runtime and a significantly thinner design and lower weight.
But if they decide not to, it wouldn't be the first time Apple disappoint. Then Android Tablet makers will have that opportunity but uptake of the technology may not be as fast especially if Apple's marketing continue to make it sound ok for e-reading and mobile computing use to have a regular backlit LCD that is unreadable for ebooks and unusable outdoors.