A security flaw has been confirmed that Apple's smart cover can be used to unlock passcode-protected iPad 2s. It's a flaw, and yet, oddly, also a setting that you can -- and should -- turn off to fix.
As shown in 9to5Mac's video above, someone with a smart cover can unlock an iPad without knowing the passcode by holding down the power button, closing the smart cover, opening it, then clicking the cancel button. This would give a malicious person access to your home screen and any apps (including Mail) you had open before you had locked it.
This issue affects iOS 5 users and may also occur in earlier versions of iOS 4.3, according to some reports.
To fix this bug, go to Settings, then General Settings and switch the "iPad Cover Lock/Unlock" button to off.