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The video the OP posted is utterly misleading. It's interlaced video (this is what causes the horrible flickering lines and stuttering on youtube). The ipad doesn't record interlaced video!

I can only guess it's one of two things:

1. This is fake, and the video isn't from an ipad at all, but a cheap HD video camera of some sort designed to work with a HDTV

2. It's been run through some kind of conversion program that's really messed up the video in a bad way. (Doesn't make much sense, as you can just upload the video directly! And why would you run the video through a converter that's obviously NOT designed for youtube or ipad, if you want to investigate video quality?)

As to the actual quality of the camera: it's ok, for a camera of this size on a tablet. It's clearly designed for video (photos aren't exactly great, but they're passable). Videos tend to look fairly good, I'd say "good enough" rather than that "stunning". Quality depends on the light levels, so outside in daylight is vastly better than indoor with poor lighting.
 
I read a lot of tablet reviews about ALL the different brands/models of tablets and when the topic of cameras comes up, I always seem to see the same sentiment about the back camera, which is usually along the lines of, "We felt pretty silly taking pictures with a tablet and got a lot of weird looks when we tried it." I feel the same way. I have captured some video on my iPad and it looks decent enough. It would do in a pinch, but I would almost always prefer to reach for my iPhone 4 for video or stills. It's more comfortable to use and is better quality.

The iPad 2's cameras are there for video chat. That's it. I don't care what Steve Jobs or anyone else from Apple says. Video chat was a HUGE element missing from the iPad 1, which I loved but held off on because of the lack of a front camera. I actually could have done without the back camera on the iPad 2, but it does come in handy when I'm using FaceTime or Skype and want to flip the camera to the other side. (To show my kids to whatever relatives I'm talking to.) But video chat is a major reason I wanted a tablet in the first place. The iPad 2's cameras serve that purpose just fine.
 
I have captured some video on my iPad and it looks decent enough. It would do in a pinch, but I would almost always prefer to reach for my iPhone 4 for video or stills. It's more comfortable to use and is better quality..
Obviously the iPhone 4 is a more comfortable device for video/stills but as much as Apple wants to provide a "PC-Free device", they should also care about creating an "iPhone-Free device" for those of us who dont have an iPhone.

The iPad 2's cameras are there for video chat. That's it.
Thats an incredible copout to say a product comes with a camera yet its not meant to be used for things a camera does. But even if we pretend thats true, video chat is severely constrained because of the poor quality of the camera. Its grainy, it requires a significant amount of backlight and the resolution is terribly outdated. So while it does work, the limitations in the hardware create limitations for the users. And this sort of experience isn't what we're used to getting out of Apple.
 
The video the OP posted is utterly misleading. It's interlaced video (this is what causes the horrible flickering lines and stuttering on youtube). The ipad doesn't record interlaced video!

I can only guess it's one of two things:

1. This is fake, and the video isn't from an ipad at all, but a cheap HD video camera of some sort designed to work with a HDTV

2. It's been run through some kind of conversion program that's really messed up the video in a bad way. (Doesn't make much sense, as you can just upload the video directly! And why would you run the video through a converter that's obviously NOT designed for youtube or ipad, if you want to investigate video quality?)

Well its certainly not number one. If you watched the video you would see the man in the video holding the iPad2 in the mirror. Or did he go to the trouble of faking that as well? Anyways I don't see what the big fuss is about. It has a camera the size of a small button...what more could you ask for?
 
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