Front-facing Camera. The original iPad really should have featured a front-facing camera to allow for FaceTime chats. The next generation iPad? It's rumored to include both front and rear-facing cameras. I'm not entirely sure how people would be using the iPad for that rear-facing rumor, because it sounds terrifically awkward to me. But front-facing? I'm totally sold. Slip it in, and I'm ready and rarin' for FaceTime. Apple is likely ready as well. (Update: One commenter points out the importance of the rear camera for better augmented reality applications.)
Retina Display with less bezel. Retina Display? The iPad needs the pretty. With the iPad re-defining the e-book space, it would be a slap in the face (or in the front glass pane) if the iPad 2 didn't go Retina. At the same time, I'd love to see Apple move the screen space for the iPad 2 further to the edge. Yes, I doubt that Apple would get rid of the bezel completely, but the usable screen surface for iPad 2 could be greatly expanded using the same physical dimensions as the current iPad.
Engadget's report does not support this hope. It promises a screen resolution of 2048x1536 (compared to the current 1024x768), which is a simple Retina doubling like we saw with the iPhone 4. If you forgive me for jumping into pedantic geeksville, those extra pixels are likely not directly addressable by applications. The way it works from the developer end is that the iPhone 4 screen space remains 320 by 480 in points even if the number of pixels quadrupled. It sounds as if the iPad 2 will go the same direction: similar screen size, greater pixel resolution.
Standard 3G/GPS. If the camera is a gimme and the Retina Display a likelihood, then this is complete wild speculation. I'm not entirely sure that Apple will offer two models of iPad, namely Wi-Fi and 3G, for the iPad 2 the way that it did with the first generation. (I do think, however, think that both AT&T and Verizon models will be offered.) It might help streamline the manufacturing if every iPad that rolled out of the line did so with a 3G/GPS chip ready to be used. Yes, this increases weight and cost across the board, but it might be a move that Apple is willing to make. Of course, I'm probably completely off the mark here, but they don't call it "Kelly's House of Crackpot Theories" for nothing. [The House is a Talkcast reference - Ed.]
Better audio. It's not a terribly hard or demanding a task to improve the speaker (as Kelly pointed out, singular!) built into the iPad, to at least offer stereo output. This could be an affordable improvement on Apple's part that would greatly enhance the user experience, up close and personal. Right now there is stereo, but it is sent through one speaker.
Re-imagining the Home button. Surely the weakest part of the iPad, Apple doesn't need to get rid of the Home button, but couldn't it at least re-think it to make it less mechanical? There are so many better switch options that Apple could design for, transforming the Home button into a more durable screen element. There's nothing in Engadget's report that points to this, but it would be great if Apple went that way.
SD-Card slot. Honestly, I'm ambivalent about this, if true, because Apple would never let us use the slot for extra storage. It's far more likely that it would limit this to data transfer, a la the Camera Connection Kit.
Low-hanging fruit. There are certain other areas that simply reflect year-to-year advances in general technology, and Apple usually takes advantage of these. Expect to see improvements in the processor speed (multi-core ARM Cortex A9 vs single-core A8), available RAM (no leaked details) and battery life in the next iPad. How much improvement? It's hard to call, but I'm expecting something here, some sort of bump.
So that's the list that I talked about on the talkcast. Now it's your turn. Where do you see the iPad 2 going? And what features are must haves for you? And what way-off wild feature would you wish into the specs if you could? Have your say in the comments.