Very happy with the iPad2. For what I would use it for I think it has more than enough memory (16, the smallest). My 9yo son has had it for a year now, he got it for his birthday last year but I usually swipe it in the evenings.
Space: We have to delete things a lot so that we can add more. So if I were to buy another one it would probably have more memory. He likes to take pictures and videos, and make stop motions and create cartoons, all of which take up a lot of space. There is no room for movies.
Processing: I'm always surprised at how smooth it runs, seems to have a seamless processor.
Display: Aside from the boy-smear the picture quality is great, and I have never thought, gee I wish we had an iPad3 for the display.