SOLUTION - I think this will work for everyone.
First, if you read through this whole thread, you will find there is not a given password that works - i.e. it is not your Windows password (worked for some, not for others), your apple id (worked for some, not for others) etc. I won't begin to guess why one type of password works for some and not for others. But I bet this will work for all:
Cancel the restore from backup process
Select your iPad in iTunes if not already selected
On the Summary tab, go to the Backup section.
You will probably find that password-protecting your iPad backup is NOT checked.
Check it
Enter a password
If the iPad starts backing up, just cancel it
Your iPad screen is probably still showing the "Connect to iTunes" symbol
Eject your iPad in iTunes and disconnect it
Connect it again
The password dialog will probably appear again
Enter the password you just gave and VOILA, 2 pennies says you're good to go!
If this doesnt help you, I'm sorry
If it DOES help you, save me a seat on Steve Jobs' next speech, after he's upgraded Moses' tablets...
Cheers
Marius