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3.8 - 4.0 screen display inches would be perfect, while keeping the same dimensions of the phone.
 
I'm still not sure what the advantage of a bigger screen on iPhone will be. There are so many threads arguing about how people won't buy the next iPhone if it doesn't have a bigger screen than iPhone 4.

It is very unlikely Apple will change the resolution. It's built into the OS to easily support 2x resolution (iPhone 3GS -> iPhone 4). There is no such support in iOS 5. A bigger screen will mean less pixel density. This may not be noticeable because it's still a "Retina" display, but it won't actually offer any advantage except for UI components being slightly larger. You'll still have the same amount of content on the screen.
 
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