Cool. I have a Skyrocket in addition to the iPhone. The screen is 4.5" - and it just as easily flts in my pocket as my iPhone 4. The note, for me - I think would be too big and a "phablet" as you call it. But 4.5 - not bad at all. I will say now that as nice as the iPhone 4 screen might be - I'm not spoiled by the larger screen. When I look at my iPhone 4 screen now it's tiny and hard to read (size of text).
People adapt to change. Just like people have gone from thinking Mono was enough - to stereo - and now 5.1/7.1, etc.
People with gripe no matter what - but it's short lived. If Apple produced a phone that was 4.5 inches - people would balk - but it would still likely be the best selling phone to date and people would wonder how they ever lived before with the smaller screen. Just like when "retina" was introduced on the iPhone and even though people thought older models had a great screen - the new screen made them unable to look at their old iPhones.
For me the pocket size part is less important than the ability to use one hand and be able to access the whole screen. I can take my iPhone out of my pocket, hold it securly in one hand, unlock it, open and use apps, and relock it again without needing to reposition my hand at all. A screen much larger than the current size would make that difficult to achieve.
On the issue of screen size and text, I think a few things will come into play here. Apps are optimised for a small screen so when you're using apps that becomes less of an issue. Websites aren't always optimised but more and more sites are now offering either a mobile version or an App. Then you have Reader - I always try to use Reader when I can, or Instapaper. I spend relatively little time reading text on non-optimised sites.