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It's possible that the iPad GPU doesn't support all the operations Handbrake encodes and has to have the CPU decode them (resulting in higher CPU and increased power usage), whereas the media in the iTunes Store might have been encoded with only the operations supported by the GPU. This is just a theory, however it's certainly plausible.

Encoding video is a complex process and the professionals who prepare movies for the iTunes store have better algorithms and will tweak options for better, smoother playback.

I'm not sure about the DRM, but algorithmically it's probably a lot simpler than h.264 video.

The DRM doesn't make the decode harder. The files used less CPU/GPU power because they weren't as well compressed.

They probably weren't as well compressed because they're intended to work on the older iDevices too which couldn't handle something tuned specifically for the iPad or, even more so, the iPad2.