It's not a joke but it is iTunes' way of telling you that you cannot put iOS 5.0.1 on that iPad2 (as Apple has closed the signing window)
No. Again, this is a result of you trying to put a firmware version on the iPad that is no longer supported by Apple. It's one of the error notices (or results) you will get when you try to put on iOS 5.0.1.
Yes, you have to wait. Run the iPad on iOS 5.0.1 until you hear of a jail break for iOS 5.1. Then, you can go ahead and restore (which will load iOS 5.1) and then you can jail break that version.
So, relax. Don't worry about the Other space and just enjoy your jail broken iPad2 on iOS 5.0.1.
OK, Thank You Marilyn!