[Update: Affecting Only Some Units] The Nexus 7's Screen Has Surprisingly Bad Image Retention - Just Take A Look At These Photos

ASUS Response: We've received a response from ASUS that they're unable to replicate the problem on production units (I/O units are, technically, pre-production), so this may have been sorted out in time for the initial consumer run. It appears, then, that this problem is at least affecting only some units.
Update: Here are some more comparison photos from a different Nexus 7.

Some have suggested this is a native behavior with IPS displays called "image retention." I did a side-by-side of the same image with a Transformer Prime and Trasformer Pad 300 - both of which have IPS displays. The retention occurred only with a bright-white image on a darker color. The Nexus 7 does it with almost any image, and more severely. This may be an issue with the IPS panel in the Nexus 7, or it could be a software problem, but it's by no means the same in every Android tablet with an IPS display out there. It's definitely worse on the Nexus 7, any way you slice it.
Additionally, the image retention you're seeing here is obviously with an example that easily shows up on a camera - it happens in other situations, but it's more difficult to capture. Finally, once the display has "warmed up" after about 30 minutes of on-time, the problem seems to be of a significantly lessened severity. It's really noticeable after it hasn't been used for a couple hours, but after 30 minutes of having the display on at full brightness, I find it becomes more difficult to see.
Is this going to ruin the tablet? Of course not - but it's a concern, and everyone considering buying one should obviously be aware of it. We're pointing out a flaw - that's it.
It appears that the ASUS tablet's display is experience some pretty severe image retention, as confirmed by myself and Artem on both of our tablets. The proof is in the pudding, of course, so take a look at these images (source image, retained imprint) and see for yourself:

Source image
That's the source image I used for imprinting (ignore the reflections - the N7's display is annoyingly glossy). I left it on the screen for around 2 minutes at maximum brightness before hitting the home button, going to an empty homescreen. This is what I saw:

Retained imprint
Yikes. It's extremely noticeable, and like I said, we've confirmed it on at least two I/O Nexus 7 tablets. The worst part? It doesn't just immediately go away. It took almost 2 minutes for this imprint to disappear, even when I was switching apps and going between homescreens. That is not good. The noticeability of the imprint depends on the color being displayed on the screen, as well. The stock wallpaper seems particularly bad about it, actually.
However, with the display set to automatic brightness, especially in sunlight, the problem is much less noticeable. But on maximum brightness or under incandescent/fluorescent light even on automatic, hovering over some icons for 5-10 seconds on your homescreen then swiping to an empty one will leave a very visible retained image for 10-15 seconds. Let me reiterate that: it's noticeable even with things like homescreen icons on automatic brightness. You'll have to look for it more, but it's definitely there. I chose this example image because it's the only one that's really visible in a photo, it's much harder to capture when it's more subtle. The problem also becomes less severe the more time the display is on - it seems to "warm up."
Does it ruin the tablet? Of course not. Is it one of those things that just cannot be unseen? Yep. Then again, for $200, we weren't expecting the world out of the Nexus 7's display, though I can't say we were expecting this, either. We have no idea if this is affecting all units, but two suggests at least some significant portion have this problem. It could very well just be a natural behavior of the display panel ASUS and Google chose. We don't know - and we won't know more until ASUS or Google comment.

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