same problem with Yahoo contacts
I have experienced the same problem syncing Yahoo contacts with my iPad, where it would create hundreds of duplicates (I don't use a MobileMe account).
I cleaned up my contacts in Yahoo, deleted all the contacts from the iPad, and then synced with "Replace information on this iPad" checked, but the duplicates still all came back.
After cleaning up my list again, I found a place in Yahoo contacts where it was storing my deleted contacts and I permanently deleted all the duplicates, and tried syncing again, and they still all came back.
Finally I cleaned up my contacts again, permanently deleted the duplicates, deleted all contacts from the iPad, and waited a couple of weeks to make sure those duplicates had cleared out of any caches where they existed. When I synced again (with "Replace information on this iPad" checked), the duplicates and old contacts still all came back, so now I don't sync my contacts with my iPad anymore.