The iPad 3 should have this:
A miniSD card slot that is not springy and somehow easy to plug and play or some other way to have proper file management on external storage media only.
Wireless USB or some other way to connect an enormous range of devices to the iPad over short distaces.
An API to be able to write lightweight drivers for these external devices (the OS would take care of talking to the devices, specific apps would just ask to be able to read or write data to the device and iOS would prompt users for this decision).
No homescreen button. It's annoying when you hold the iPad and don't want to accidentally press it. Think of something else than a button on a touch device.
The back camera needs to be centered like the one in the front.
Both cameras need to be placed on the wider edge because that's how movies and photos tend to be taken, in landscape.
The front camera can be VGA but needs to take clear images in low light conditions.
The back camera needs not have 5, 8 or 10 megapixels. 2 Mp is just perfect. Any more than that and I prefer using a professional camera.
The screen also needs to be around 2 Mp, since I think a 4:3 aspect ratio is best suited for all purposes on a tablet, 1280x960 (SXGA-) or 1400x1050 (SXGA+) should be the next mandatory step up from the iPad2.
Since the overall size of the tablet would increase, except if the screen ppi increases instead, which I don't think it needs to (there is no point on a medium size display - there's only a point on small displays where you need to pack a lot of information to become useful or on large displays where otherwise you could start seeing the pixels (displays that you need to look at from 10 meters away not included)), then you can pack a larger battery since batteries don't tend to decrease in size and increase in power the same way integrated circuits do.
There is no risk involved if the device gets a bit wider and taller. On the other hand, i don't think it needs to get any thinner than this, probably... ever! Not even if it will become almost entirely made of diamond strong glass!
The dock connector should be a lower speed Thunderbolt port but still be chainable.
iOS should have more incremental updates and more people should be working on it especially doing R&D that will keep it futureproof and always interesting to use and for developers to check out.
It needs to support any bluetooth compatible pointing device (aka. a mouse, a remote control, etc.) and keyboard.
Safari needs better web standards support and rendering.
At least 1GB of RAM.
More customisation possibilities: color themes, keyboard styles and arrangements, customizable keys, resizable app container groups, desktop widgets, animated wallpapers...
I could go on but I'm tired of remembering more of the things I wanted to say but didn't take note of on time...