That is correct.
> The vulnerability i thought was that the iPad remembered the password for a short amount of time, if you handed your iPad to a kid in that time they could fire up the app and make a purchase without needing to re-enter the password
That is also correct, but can be fixed via parental restrictions: the default configuration allows in-app purchases, mandates password entry and remembers the password for fifteen (15) minutes, it's possible to disable in-app purchase altogether (independently from AppStore purchases) and to not remember the password at all.