Im not sure I agree. Should Screen Size really be bundled in with "under-the-hood" specs that customers dont care about? No offense to Android fans, but I feel that if Apple offered the same size choices then Android's marketshare be much smaller because iOS is the more desirable OS but most of the Android users I know said that screen size was the major deciding factor for them.
Its tough to associate growing sales with a consumers love of 3.5" screens. Just like how many people make their purchase decisions based purely on screen size with no regard to OS, many people also choose OS and simply accept whatever screen size is available. As much praise thats given to the durability of the iPhone, I never use a phone for more than 18mo anyway so I'd gladly take a plasticky 4.3" competing phones if it ran iOS.
IMO, I feel that if given more size options then even within Apple's userbase then the 3.5" model would be the least popular model because the world has evolved beyond what Apple felt was the ideal size of 2007.