Capacitative displays, like the iPad and iPhone, "feel" all touches from a person. They can't tell the difference between a resting palm on the screen and a stylus attempting to write something. The result: while there are dozens of applications for the iPad that enable drawing or note taking, most of them must be used without resting your palm on the screen.
Penultimate fixed that in release 1.1, recognizing most palm touches. In the newest version, they've added some bells and whistles and fixed bugs. Most importantly, they've fixed one of the last major usability issues: the accidental touching of the next page and erase functions on the bottom on the screen. This happens when your palm is resting, leading to page advances while you're writing a sentence.
I have bought most of the different note taking applications on the iPad but this is the best one by far.
Screen shot from Penultimate, (Cocoa Box Design):