I don't remember what it did under iOS 4.x.
This is what I found by experimenting.
In landscape it will not zoom at all. It displays at 100%, and that is it.
In portrait. It will zoom up to 100%, and down to where it fills the screen width wise. It will look like it will zoom to other levels, but springs back to one of these two limits.
When I tried a larger 11 x 17 inch document the landscape mode acted like the portrait mode for a normal document. Only a very limited amount of zoom was possible. The portrait mode continued to allow zooming, but of course allowed just a bit more.
My conclusion. Your maximum zoom is 100%, the minimum is fill the screen (with filling the screen taking priority). In landscape a 8 x 11 page is already 100% or more, so that's all you get. (yes, I know it's not a 1:1 representation of the page in real inches, but the iPad thinks it is, and that's all that counts).
My second conclusion: Nothing you can do about it except open the document in a more capable viewer; probably a word compatible editor. And offer
Apple feedback on the feature.
Sorry.