The Tegra 2 chip is not capable of running live wallpapers smoothly due to its crippled 32bit memory interface. It simply does not have enough memory bandwidth to process. Tegra 2 was SUPPOSED to have dual channel memory but Nvidia decided to ditch the second 32bit channel (which would have greatly improved performance under live wallpapers and games) to save power
This is the same reason why you notice your tablet slowing down after using it for a little while. Once system memory starts to get filled Android OS needs to shuffle around memory, remove apps from memory to make room for newly launched apps, ect. This all takes alot of memory bandwidth and with only a 32bit wide channel you can see why your tablet slows down. Especially when doing anything visual like swiping home screens across.
Most people dont know that Tegra 2 is an old chipset. Its been around for over a year now. I was blown away and shocked when I found that Nvidia used a crippled 32bit single channel memory interface. Not sure what they were thinking
I cant wait for TIs dual-core SoC, they run dual channel memory and have a GPU many times faster that Tegra 2. If you want to run live wallpapers its best to skip any Tegra 2 device and wait for a unit with TIs SoC later this summer or a Tegra 3 which will be in tablets in 5 months.