The Battery Replacement Service FAQ on Apple's site outlines their policy for handling iPads with diminished battery capacity, and its surprisingly generous: for a $99 service fee, they'll send you a brand new iPad.

The first two items on the FAQ lay it out plain and simple:

If your iPad requires service due to the battery's diminished ability to hold an electrical charge, Apple will replace your iPad for a service fee.

Note: Your iPad is not eligible for Battery Replacement Service if the product has been damaged, for example, as result of an accident, liquid contact, disassembly, unauthorized service or unauthorized modifications, or if the product is not operating correctly as a result of a component failure. Please review Apple's Repair Terms and Conditions for further details.

As to how much it costs:

The service costs $99, plus $6.95 shipping. The total cost is $105.95 per unit.
All fees are in U.S. dollars and are subject to local tax.

If you're still skeptical, they spell it out in a section on backing up your data:

You will receive a replacement iPad that will not contain any of your personal data.

Batteries losing their ability to hold a charge is just a sad fact of gadget life, but this policy should make it a whole lot easier to bear. [Loop Insight]