Speaking of which id be over the moon if the next iPhone was 3.5" but half as thick and twice as light. Now THAT would be innovation and exciting. Id even take the current screen size or if they were to make the screen size bigger the device needs to remain no larger, so its just edge to edge. But thinness and lightness would be the key for me.
In terms of thinness and weight, iPhone is heading toward the direction of iPod touch.
As for the screen size, I think you are becoming one of the dinosaurs. In 2007 when iPhone first came out, I wished for iPhone nano. But overwhelming majority carry just one phone and most people want/need a phone that can do a lot more than what basic featured phones can do. And it is much harder to accomplish wider range of tasks with a smaller screen. While 3.5" screen can do all the tasks, once you use larger screen, it is often harder to go back. And frankly, I think Apple will do more to reduce the size of bezels on future iPhone models.
It is pretty clear that Apple will supplement iPhone with iWatch. It is my hope that iWatch will be available with cellular antenna as as option. Adding iPad LTE to AT&T costs $10/month.
And I hope iWatch LTE will be empowered with ability to receive and send iMessage, make FaceTime calls (at least audio only variety), etc. all without being tethered to iPhone.