The best option is to just scale everything up in size but keep the resolution the same. The pixel density is all that would change. You can go from 3.5" to 4" without affecting the Apps at all if you keep the same 960x640 resolution.
Most Apps would not "Just Work" with a newer Aspect Ratio, only some apps that scroll top to bottom might work. Apps with fixed sized screens would have to be boxed and would still be the same size as they are now. And developers would then be forced to write all future apps to two screen sizes or letter box their App.
We will know more at the developers conference when they preview iOS 6. If iOS 6 has provisions for a different Aspect ratio it will be apparent in the new version of the OS and it will come out. If there is no mention of support for different Aspect ratios then we will either get a 3.5" screen or a scaled up larger screen with the same resolution. They would just say it is still a retina display if you hold it an inch further away.
The only problem is that it creates a ppi of 288 if you do that. Will Apple be able to stick to their guns and say it's a Retina display when they've reduced the density? Yes, I suppose they could argue you hold a 4 inch phone further away from your face but that would be stretching credulity a bit.