The built-in Music (formerly known as iPod) app on iPads, back in the iOS 4.2.1/4.3.x versions, was also capable of displaying lyrics. Unfortunately, it doesn't work on any 5.0+ iPads any more. (On iPhones / iPod touches, it works just fine on all 5.x iOS versions.) Unfortunately, it's only on jailbroken devices that lyrics can be displayed from inside Music (via the app "Lyricalizer").
As stated above by King_Penguin, you'll need to look for third-party players. I've tested Lyrics Finder ( http://itunes.apple.com/app/lyrics-finder/id413046791?mt=8 ) and found it OK. Of course, it's still a far cry away from the stock Music app...