In my opinion 3.5" is to small. That is the reason I have never bought an iPhone. Even my last phone with a 3.7" screen seemed a little small. Now I have a Droiad Razr Maxx with a 4.3" screen and love it. I would not want a phone with anything bigger then a 4.3" screen. I do think Apple will go with a 4"or 4.3" screen. I think that will be the perfect size for the next iPhone.
I saw a co-worker with a Droid Razr Maxx today, and he was holding it in one hand, while using his index finger in the other to interact with the screen. It reminded me of how I use my iPad when I'm not at my desk.
When you naturally pick up your Droid Razr Maxx, how do you hold it?