I just bought the Playsport but only read your post now about SD only. It's awful to know that there is such a limitation that probably shouldn't exist. I'll probably return the Playsport in a few days.
I just tested the Canon 5DMKII and the Canon 7D video files with the iPad. I was only able to play and edit the standard definition video files from the Canon 5DMKII. I used the USB adapter from the camera kit.
It also bugs me I can't connect my HTC Evo and the Playsport directly to the iPad 2 via USB. I get the power consumption error.