Both my small kids (1 and 2) love the ipad....they watch movies and play with the kids games (mickey puzzles and pooh storybooks are the hits).
I think its fine. That being said, I dont let them just sit at it for hours, just one or twice a day for 30 minutes or so.
Plus, "out of sight, out of mind" so they will forget about it for days at a time until it appears again.
There are quite a few educational kids apps out there so I dont' see any issue.
EDIT: oh, it can be especially useful for the 2 year old on car trips....
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