Good news!
So as has been previously reported all pictures must reside in the directory DCIM on the memory card. Additionally, the file name must be 8 characters long; No more, and no less. So as an example "PIC00001.jpg" and "PIC12345.jpg" are both proper file names. However "Picture001.jpg" is not and the iPad will not recognize it.
Renaming files can be a pain so on my PC I downloaded a utility called
"Batch Rename .EXE" from Download.com. It worked very well and solved the 8 charater problem for me.
I recommend moving all the original files on you memory card to a directory other than DCIM and letting the Batch Rename .EXE utility both rename and move the newly named files to the DCIM directory.
Works like a charm! Good luck!