Here's the dilemma: My aunt wants my old iPad 1 and she's not very computer literate, nor does she have regular access to a pc. Since iOS 5 doesn't require a pc connection, I'd like to reset the iPad to factory settings, install iOS5, and then mail it to her to set up as she wishes (likely with the help of one of her kids).

My concern is leaving any of my Apple account info on the iPad. If I go into Settings/General/Reset and select "Reset All Content And Settings" will that remove iOS5 as well and take it back to factory? Conversely, will just "Reset All Settings" remove my info (AppleID, e-mail accounts, etc)?

Erase all content and settings doesn't erase the firmware, just all data and configuration information.

I would set up both an iTunes account and iCloud account for your grandmother before you ship it to her. Add her email account as well so all she has to do is tell it her password to get started.