How Apple should display iPhone apps on iPad
See the icons for Tweetie, Birdbrain, Flight Control, Compression.
Those apps are all iPhone apps, and when run on an iPad they run small in the center of the screen with black surrounds (or at an ugly 2x scaled).
On the home screen, these iPhone apps are currently represented much the same as iPad apps, except their 57x57 pixel icons are blown up to be an ugly blurry 72x72 next to the higher res iPad icons.
In this mockup, with the black borders they could keep their sharp 57x57 pixel size, and have the added benefit of being easily recognizable as iPhone apps to the user.