Some great digging by Duncan Davidson and Steve Streza: turns out you have to save your JPEGs (that are over 2 megapixels) as progressive for them to be rendered correctly on the new iPad. Davidson:

After reverse engineering the limits and then later being pointed to the documentation about the limits, somebody suggested using a progressive JPEG file based on the observation that the large iPad hero image Apple uses is a progressive JPEG. I’ve not used progressive JPEGs in years, but following that suggestion, I gave it a shot. Lo and behold, it’s indeed the ticket to large JPEG joy on the iPad Retina display.

Interestingly though, Davidson isn’t convinced we should start saving all our JPEGs as progressive.