It is for me. Whenever I have to go back to using my wife's iPhone 4 I just love it. It fits in my pocket. It's super easy to use because I don't have to do some crazy thumb stretch just to tap a button.
3.5" is the perfect size screen. There is no reason to make a bigger screen. The "bigger is better" crowd is ruining UX time and time again.
I agree. They should not have cancelled that form factor. And the 4" has been useless from the start. With this 4.7" and 5.5" coming it would have been nice to have a total of 3 options:
3.5" - the ultimate in 1 handed operation
4.7" - the best compromise of device size and screen real estate
5.5" - for females who have handbags to carry their smartphones in