What the flaw allows:
The person who unlocks your iPad 2 will not have complete access to your iPad, but will be able to gain entrance to whatever you locked your iPad 2 on. If your iPad 2 went to sleep in Mail, Safari, Messages, Contacts, or Maps, you can imagine the sorts of personal information that can be viewed on your iPad.
If your iPad was on the home screen when you locked it, someone trying to break in can only control media and see what applications you have installed.
Steps to Recreate:
1) Lock a password protected iPad 2
2) Hold down power button until iPad 2 reaches turn off slider
3) Close Smart Cover
4) Open Smart Cover
5) Click cancel on the bottom of the screen
To get around this bug you can disable Smart Cover unlocking from the Settings:General menu. Hopefully Apple resolves it soon.