The developers preformed the teardown because they noticed that for some reason the video output with adapter was limited to 1600x900 and MPEG artifacts were present in outputted video; whereas, the old Dock Connector AV Adapter performed much better.
Panic's theory is the Is the Lightning Digital AV Adapter is basically the world’s smallest AirPlay receiver which unfortunately does not output 1080p video.
There are a lot of questions. What OS does it boot? @jmreid thinks the adapter copies over a “mini iOS” (?) from the device and boots it in a few seconds every time it’s connected, which would explain the fairly lengthy startup time for video out. Why do this crazy thing at all? All we can figure is that the small number of Lightning pins prevented them from doing raw HDMI period, and the elegance of the adapter trumped the need for traditional video out, so someone had to think seriously out of the box. Or maybe they want get as much functionality out of the iPad as possible to reduce cost and complexity.
Read More [via MacRumors]