Check out the Capo app.
I'm in the same situation. Just bought an iPad (haven't even got it yet) to use primarily for lyrics / lead sheets for gigs, and all other things musical. I may end up running VST's or some other software for gigs eventually but initially I will be using it for lyrics & practicing. I have to figure out how I can leverage it's capabilities to help me practice / perform better. I'm very interested to see what other people's uses are and what's possible musically using one.