If anything, the smaller size of the iPhone means infinitely more advancement as they can pack better battery life, equivalent CPU performance, better GPU performance AND one of the best mobile displays on the market into a smaller footprint....
I understand people feeling bored with iOS or saying its becoming stale - but please....Apple still rules hardware/quality-wise and no amount of added inches to the Galaxy line would change that.
Apple wouldnt be able to put more of anything in the current size of the iPhone. Its much the same reason why they havent. With the iPhone 5, you really are looking at the 4s in a longer package. The size of the phone will cause some limitations.
The best screen on the market has been out for almost two years, and most dont care and are flocking to phones with what a few consider lesser screens for more than just the size. They are leaving for the features which are complimented by the OS and the services.
No one is leaving superior hardware, an arguably "better-for-some" smaller screen, and a "arguably-better-for-some" OS simply to change the launcher.
Just don't get the pull of a phone this size. For most it is too big to be really portable and used easily on the go while concurrently being too small to be a legit tablet replacement.
Jack of all trades.....master of none.
It's all in how you use it. The limitations of technology usually fall within the limitations of the end user.
e.g. I can pick up a Note 2 and fit it into my workflow, or an iPhone, or a Palm Pre. Same thing for Windows devices.
Some devices work better than others at certain tasks, but none would ever be totally useless. I am sure a great deal of people will buy this device instead of a smaller phone, a larger tablet, and an even larger laptop.
More like jack of many trades, master of them all, and perfect for those that want to use those trades.