Personally, I wonder if Apple will combine a hardware screen size change with a UI redesign for iOS 6. Certainly after 5 generations, Apple probably has fresh new ideas that are bigger than the generally incremental improvements we've seen to date. Obviously any changes would have to still be backwards compatible, perhaps with limited functionality, for older devices.
Throwing something out there how about a change in aspect ratio to 16:10? The extra screen area top or bottom for instance could be used for notifications perhaps. The wider aspect ratio would be better for movies, allow games using virtual controllers to have them further on the side so they don't cover the action as much as example benefits, while not being as wide as 16:9 which is more ackward to use in different orientations. 1024x640 as a starting resolution allows all current 960x640 apps to run with no stretching simply black bars. Initially, new apps designed for 1024x640 could simply use the extra space for extra UI elements geared toward quick access and convenience so that not having them on 960x640 devices won't severely impact core functionality. A choice of 3.74" screen up from the current 3.54" screen, means that the physical width of the display in portrait mode is unchanged. The screen is simply taller and can cut into the currently wasted space top and bottom without even requiring reducing the size of the home bottom. There is no need for edge-to-edge screens which could impact cases and lead to accidental touches when gripping the device and the overall size of the phone does not need to increase. A 1024x960 3.74" screen compared to 960x640 3.54", both having similar width, with the 3.74" screen simply being taller means that the size of elements don't change, there is simply more touch area and when running 960x640 apps on the 3.74" screen the black bars top and bottom were previously bezel so there is no change in usability. And conveniently, 1024x960 on a 3.74" (9.5cm) screen works out to 323dpi, virtually unchanged from the current 960x640 3.54" (9cm) 326dpi screen. Changing to 16:10 aspect ratio adds a lot more flexibility since even 4" 1024x960 would be 302dpi and still Retina whereas a 4" 960x640 3:2 screen would be 288dpi and sub-Retina. Still, I think 3.74" 1024x960 16:10 seems like the best all around choice, although I suppose the criticism is whether going from 3.54" to 3.74" is a big enough jump for people. Still the point of the screen size change is not merely size, but the enablement of UI changes if iOS 6 is a major revamp.
Edit: For comparison
Diagonal: 3.54" (9cm)
Height: 2.95"
Width: 1.96"
Resolution: 960x640
Aspect Ratio: 3:2
DPI: 326dpi
Diagonal: 3.74" (9.5cm)
Height: 3.17"
Width: 1.98"
Resolution: 1024x640
Aspect Ratio: 16:10
DPI: 323dpi
Diagonal: 4"
Height: 3.33"
Width: 2.22"
Resolution: 960x480
Aspect Ratio: 3:2
DPI: 288dpi
Diagonal: 4"
Height: 3.39"
Width: 2.12"
Resolution: 1024x480
Aspect Ratio: 16:10
DPI: 302dpi
