As mentioned earlier (when the 'Gizmodo' phone was taken apart) the borders around the LCD panel are slightly larger, in all directions (like 1 mm). As you may notice when comparing a 3G/S iPhone to this one, the spacing above and beneath the speaker grill is also slightly larger. The phone itself has approximately the same dimensions however. This leads to my assumption the LCD panel is a 3.4" one. The only reason for using a smaller panel is that production facilities in China already pump out these parts in volume. Common pixel count for the 3.4" size is currently 720x480. Apple would be crazy not to use this option, and save a boat load of money at the same time (word in the street is the part is 30% cheaper than the 3GS LCD). The Meizu display is a low-quality (specced at 16k colors) one, but I see no problems for Apple having a high-quality (65k or 262k colors) part produced with further identical specs. Apart from that, the 'competition' uses displays up to 960x480. Sticking with 480x320 for the 4th generation will look like a step back...
Those screens would be a massive step back, considering the iPhone, iPhone 3G and iPhone 3GS all use 16M color screens.