I guess I'm having a hard time getting my point across. When the N7 is on the table (not holding it), the light will go up, then back down, then up etc. constantly all within the span of 2 or 3 minutes. The ambient light has NOT changed, and the device has NOT moved. Before 4.2 it worked perfectly. It's as simple as that. Maybe yours works, mine doesn't.
I can confirm this. I'm using an app called "Screen Brightness"(aka. "Custom Auto Brightness" by Dmitry Matuzko) on both my Thunderbolt and my Nexus 7. It allows you to customize how bright the screen is at specific ambient brightnesses, which is really useful because I generally dislike the factory defaults for auto brightness. It also allows you to update the frequency at which samples are taken and adjustments are made.
Since 4.2, I've noticed that even with the app set properly I was getting an up-and-down brightness pretty frequently, much to my annoyance.
I started the app (which shows the current brightness reading) and sure enough, the brightness indicator was jumping over very large gaps very rapidly even with my N7 sitting perfectly still on a table. This is not at all like the behavior I saw on 4.1.2, where the jumps were a lot smaller.
So that tells me two things:
1. It's software and will eventually be fixed. The sensor was a little twitchy before 4.2 but has now gone buggy.
2. The only current way around it for me using Auto brightness was to set a brightness that's a little higher than I'd like in a darkened room and a little darker than I'd like it in a lighted area, and set that constant brightness up to about an indicated 200lux, then do a more normal heuristic curve from there on up. Others might choose to turn off Auto and either choose a "good enough" brightness or set up a quick way to change brightness levels like Curvefish's "Brighness Level" or a similar quick brightness switch.
"Auto" seems fundamentally broken in 4.2 and 4.2.1. Not a critical flaw, but an annoying one nonetheless, and hopefully one that gets fixed.