What iPad PDF reader can I use to highlight text?
I use GoodReader for this. It can do highlighting, different kinds of underlining, annotating and save annotated copies to preserve your originals. 

It's a great general purpose file management and viewing app as well. Sort of like a "Preview.app" for iOS. Costs $5 in the App Store. Well worth it IMHO.

I've heard that iAnnotate is far superior at annotating tasks, hence the name, but it's $10. I already own GoodReader, and it fulfills my needs, so can't see a reason to spend $10 more just to markup PDFs.

Hope that helped.