I discovered this the hard way. Long flight, ready to relax and enjoy my movies. No Internet connection and no movies. Watching movies while offline is one of the main reasons why I and many people own an iPad. I have spent a lot of time trying to figure out how to solve this "problem". The simple answer is you can't fix this "problem", because it isn't a problem. I believe this has been put in place intentionally for reasons mentioned in this thread, copyright protection, etc, whatever. I just want to watch MY owned movies on My owned device.
However there is a workaround. Download the VLC app onto your device and transfer your movies to VLC using file share in iTunes while your device is connected. Your movies will play while offline, every time.
This is not the best solution for everyone as you need to sync your device with iTunes to get your movie content, but it will get you watching your movies in the air.