Put this in perspective: Tablets just aren't as powerful as their desktop brethren or we'd all be computing on tablets by now.
Adobe, I imagine, has to keep the limitations of the hardware in mind. What makes tablets so attractive is that while they're not as powerful as desktops can be, they're quite portable. I'm sure this will change, as will Photoshop Touch, in the coming years. There are now quad-core tablets and I believe hex-core tablets are in the pipeline.
With that said, I'm surprised Adobe was even able to squeeze the ability to work with (what is it?) 16 layers in a project, with nearly the power of Photoshop's image-editing paradigm. In my opinion, 1600x1600 isn't so bad especially for a mobile platform. Most peeps are using 20+ inch desktop monitors with a max resolution of 1920x1080 as well.
To add, Photoshop Touch wasn't supposed to replace Photoshop CS or Photoshop Elements; more like augment it and your creativity, especially when you're out and about with your tablet. At least this is the vibe I got when I first heard of it.
PS Touch will import your ultra-high-resolution images; they'll just be resized down to accommodate 1600 pixels wide or high (whichever comes first). Note this will NOT alter your original image (as it should be).
I thought that as iPhoto on iOS can edit full sized images up to 16MP, on a 2048*1536 screen, and Photoshop can only edit 1600*1600 in an app which only supports 1024*768, an update is due. Even if Photoshop is more powerful than iPhoto in some respects, it's less graphically intensive. It also lags when scrolling through my photo library, and I have to wait for thumbnails to appear when on iPhoto they appear instantly, and can be edited instantly.
I'm so dissapointed. Hardware will be perfectly fine with higher resolution. If iPhoto can do it, Photoshop Touch can.
On my iPad (the 3rd generation, the pictures from my dSLR camera come out super pixelated and blurry on PSTouch where as when I import the pictures just on the iPad itself they are crisp and clear, as well as after editing on iPhoto, PS should be able to handle a higher resolution that 1600x1600 I am very disappointed with the quality of picture it puts out.
I guarantee that if Adobe updates PS Touch for the new iPad to support a higher resolution, you're going to take a hit elsewhere, whether in terms of performance or a reduction in features.
Take, for example, Autodesk's Sketchbook Pro for the iPad. They updated it for the new iPad. As a result, users, when working with the new iPad's higher resolution, can only work with 4 layers instead of the 6 normally available. (Thankfully, Autodesk allows the ability to work with the original resolution.) Users are also reporting the app gets slower when going past 2 layers in a high-res composition. Maybe it's a bug; maybe it's a limitation of the hardware.
In short: Be realistic here.