It could work. They could add a simulator-esque cursor without too much technical trouble.

That said, it shouldn't. Why would anyone prefer indirect manipulation of a cursor over direct manipulation of the screen elements? If you've got an iPad in a keyboard dock, you're primarily writing and occasionally navigating. I don't see the use case.

Gorilla-arm would only set in if you were primarily navigating, in which case you'd just undock the thing.