I think it is unlikely Apple would present a 4-inch app layout letter-boxed on a 4.7-inch device. I think it is much more likely that they'd simply scale it up. The display's aspect ratio will presumably still be 16:9.
It wouldn't be too bad in terms of blurriness. They could even try and be clever and automatically set the device text size to 85.1% of the normal size when accessing a 4-inch app.
It wouldn't be too bad in terms of blurriness. They could even try and be clever and automatically set the device text size to 85.1% of the normal size when accessing a 4-inch app.