While applications specifically made for iPhone 4 (that is 960×640 resolution) will work on iPad (using close to the whole screen space – 1024×768), we don’t know if iPad HD applications available now at the AppStore will work on iPhone 4… or they may be interpolated, or truncated. If not there will need to be two HD versions per application (one for iPad, the other for iPhone 4).
Applications can still include many binaries (iPhone standard, iPad), therefore a third binary could be added. There is to note that the iPhone 4 automatically scales standard iPhone applications, with some smoothing effect (whose isn’t avaialble yet for iPad – may be when using iOS 4). Finally iPhone 4 can manage playback of 1024*768 video (seems logical as it can still record 720p video, that is 1280×720=921600 pixels, while only 786432 have to be managed in 1024×768 resolution).