Specs mean nothing, blablabla
I think this is a very dangerous position to hold when talking about the high end smart phone market.
Look, you may be right in some cases. Like, whether a prosessor is 700mhz or 1ghz is probably not something that will be a great concern for any but the most gadget-headed among us.
However, a 3.5" screen (such as the iPhones) versus the 4" and 4.3" screens of the newest smart phones will most definately be noticable for normal people. All other things the same, unless the phone is smaller than the competition (and it really isnt, even the newest leaked one is pretty big and has huge amounts of black space over and under the screen), of course people will opt for the bigger screen in the same package.
Same with resolution. It does matter, and its noticable for anyone whos used an iPhone against a HTC HD2 side by side. Hopefully this wont be a problem, since the new iPhone is reported to have a significant bumb in resolution (but why the small screen?

)
Of course, specs arent everything. But if we expand the definition to include innovation and new features, not just the hardware parts, I still think Apple has a job to do to keep up. Things include:
1) UI is from 2007
2) Touchscreen technology hasnt evolved (though it was excellent to begin with)
3) um, ok so its not that much
In 2007 the iPhone was pretty revolutionary. Since then, it seems to have evolved at a
slightly slower pace than the competition have from their then-way-behind devices. While it isnt by much, I think Apple should be careful not to get left behind. Its not so bad now, of course, but in several features and especially hardware specs Apple is already playing catch up -- again, nothing serious, but still a pretty big contrast from the iPhone debut.
The iPhone 4 looks awesome, but one -- just one, but one very significant -- flaw IMO is the screen, which STILL is only 3.5" (actually smaller than in previous iPhones). In 2007 3.5" was huge. In 2010 its actually somewhat small-ish for a smartphone. Very surprising, and a move which I think is somewhat risky by Apple. We´ll see.