what are the proper settings to encode for the iPad using compressor?

The official specs for the iPad 2 do not include the 1080p video format so your not going to find a 1080p preset in Apple's Compressor that is marked for use with any iOS device. Apple states the following in the iPad 2 specs:

"Video formats supported: H.264 video up to 720p, 30 frames per second, Main Profile level 3.1 with AAC-LC audio up to 160 Kbps, 48kHz, stereo audio in .m4v, .mp4, and .mov file formats; MPEG-4 video, up to 2.5 Mbps, 640 by 480 pixels, 30 frames per second, Simple Profile with AAC-LC audio up to 160 Kbps per channel, 48kHz, stereo audio in .m4v, .mp4, and .mov file formats; Motion JPEG (M-JPEG) up to 35 Mbps, 1280 by 720 pixels, 30 frames per second, audio in ulaw, PCM stereo audio in .avi file format"

However, the iPad 2 CAN mirror or scale up to a 1080p TV output and that's all they mean when they say:

"Video mirroring and video out support: Up to 1080p with Apple Digital AV Adapter or Apple VGA Adapter (cables sold separately)"

In any case, all of the A4/A5-based iOS devices can (unofficially) decode 1080p video but for quality results you do need the iPad 2 (the iPhone 4, 4th generation iPod touch, and the original iPad can decode some 1080p sources but you may see dropped frames or stuttering on those "lesser" devices).

As for creating 1080p content you can use whatever tools you want (just select 1920x1080 as the dimensions, use an H.264 codec, and restrict the bitrate to something between 4 to 10Mbps -- you may need to experiment with the latter to find the best results). However, you MIGHT need a third-party app to actually transfer and play that content on your iPad since iTunes MAY not allow you to directly sync that file to your iPad (because it exceeds the "official" spec).

As I said earlier, the iPad CAN decode 1080p video it's just that Apple does not include that resolution in their list of supported video formats (so, it's not officially supported, but it does work). You can use Handbrake to encode your video at 1080p and you can then transfer that over to your iPad for playback (but you MAY need to use a third-party app like Air Sharing or GoodReader to transfer the file and then to play it back on the iPad -- you can probably find a free or "lite" version of some file transfer app that will work).

You can also uses Compressor to create the 1080p video, just use one of the HD presets for H.264 video and make sure that the output dimensions are 1920x1080 (for standard 16:9 aspect ratio video).