Yes, that's true, so it's okay for a smartphone to be larger than non-smart phones, but there should be a limit to how big they can grow
I mean, after a while it will be too big to be comfortable to have in your pocket (it's already at the limit of being big). I don't think the iPhone should be bigger, and if it does, it would be great if that was just an optional size along with the iPhone 5 size.
See, I don't think there should be a limit, so much as a wider selection. You obviously like the iPhone 5 as it is, and that's fine. It's a good sized phone for people who want that balance between usability and...er...pocketability. Me? I think it's a little too small for heavy usage. I mean it's fine for looking something up quickly, but I wouldn't want to read a book on it, watch a movie, or play a game. It could do those things, yeah. But in my opinion, they'd be easier to do on a larger screen.
So between us, who's right? Well...both of us. We each have our own idea of what's best, what works and what doesn't. So why can't we have both? You get your traditional sized iPhone, and I get a larger one. Apple already has two iPad sizes, why not do the same for phones? Both could have the same hardware, the same resolution screen (you'd have to bump up the res on the 4" to maintain Retina pixel density on the bigger phone). The only difference would be screen size. It'd make a lot more people happy.
Hell, for people who want a phablet, why not add cell phone functionality to the iPad and Mini?
The only downside I'd see to this would be that the people with the smaller devices would have slightly less battery life. Otherwise, it's a great "everyone having their cake and eating it too" option.