I think that the Tegra 2 is a great hardware platform for the device, but I'm afraid they may be too focused on beating the iPad 2 in terms of hardware.
Hardware isn't whats making the iPad so popular, its the software. If they want to win a battle with the iPad 2, then they're going to have to do it on the software side as well.
Android is a good open OS platform, but it lacks the harmony between hardware and software that apple has created with its iOS platform. An iPad killer should have the same harmony between hardware/software and the same fluent interface and ease of use as the iPad. If they can accomplish this with a more open and desktop friendly OS, then finding better hardware will be the easy part. My suggestion is to either use windows 7 for its openess and use widgets and custom software to make it fluent or use a custom droid kernel.
Either way, if they keep trying to push more mega-pixels, more processor, more memory, the consumer market isn't going to care.