i believe the udk on the iPad3 works at this resolution, you can force to use the full resolution in the ini config files if i dont remember wrong..
the fact is that the ipad3 have such an high resolution but not enought hardware power to use it all (in example a ps3 or a x360 run most games at 1280x720 on screens much bigger than the ipad screen and have much more computational power...)
using a higher resolution will most likely kill performances and wont be needed at all.. stick with the default one that will be more than enought for anything you can do on a mobile device, or if you really want to use all those wasted pixels than i think you will need to cut out many features from your levels...
Hope it helped,
I suspect that box-0 is correct. The iPad 3 may have a very high res display, but I don't believe it has a graphics set that's actually capable of running UDK all that well at those kinds of resolutions.