When I reviewed Adobe Photoshop Touch in February, I found it generally capable, but the app would downsize any large images you loaded to 1600 X 1600, which was very skimpy. This latest version, 1.2, released today, lets you increase the resolution to 2028 X 2048. Note that you must allow that in settings or it defaults to the standard 1600 X 1600.
That's an improvement, but still falls short of even the iPhone 4 resolution (2592 X 1936), the iPhone 4S camera (3264 X 2448) and of course the new iPad resolution of 2048 X 1536 at a dense 264 pixels per inch.
There are some other welcome features, including Creative Cloud auto-sync, and new special effects, including the ability to render in a pseudo HDR look. You can also now export to PSD or PNG formats via email, or from the camera roll. The update also sports improved rotate and flip workflow and the option to transfer images to your desktop via iTunes.
iPhoto for iOS also downsizes imported images, unless they are being imported through the Camera Connection Kit. Used that way, iPhoto for iOS supports images up to 19 MP.
While this latest version of Photoshop Touch still doesn't completely exploit the new iPad retina display, it is a step in the right direction. The update is free to current owners. The app requires an iPad 2 or greater, and iOS 5 or greater.