Or apple could switch to an apx. 4-inch 16:10 Display, 1280 by 800 @ 324ppi, if I understand the Maths?
It would be big enough in every direction to accommodate current apps, written for 960 by 640, should apple decide to let them run.
16:10, or 10:16(?) would allow for enough height to comfortably display tall wepbages and additional lines of data such as social networking entries - but not having quite such a survere impact on the pillarboxing of old 4:3 and 5:4 video. It would also be less jarring than a 16:9 display, which when viewed portrait looks shockingly disproportionate.
A larger screen would also be a good opportunity to make minor modifications to the face of iPhone, such as repositioning the home button lower down then raising the speaker above the FaceTime camera in order to accommodate for the vertical space lost to the screen like so: