I don't agree they should have the exact same specs. For instance, the laws of physics dictate that smaller devices have less surface area for dissipating heat. I have no problem with there being 5-10% speed differences between different iPhone models based on clock speed alone. Or if they dropped a graphics core because of the lower screen resolution, that would be acceptable. If the OIS was only possible because of some size limitation, then I would be ok with that. Many people thought that was the reason last year as the 6 Plus was slightly thicker. This year the 6s is the same thickness of the old 6 Plus and it didn't get any OIS.
Although if thickness is the problem then I would simply prefer Apple stop making everything so damn thin. I understand that it helps drive innovation but we're reaching the limit of what is ergonomic. This 4" device sounds thicker with the 5s design. That means there's probably no reason they couldn't put 3D Touch into it. The energy efficiency of the A9 vs the A7 is pretty significant, so they could reduce the battery capacity to make room just like they did with the 6s. After all, the thickness helps makes up for the volume loss of a bigger device and quite honestly the fact that they're keeping it thick makes me wonder if there is more to this phone than we expect.
Apple probably would have made more money if they had kept the 4" size and priced it like this in 2014: $199 for the iPhone 6 Mini, $249 for the iPhone 6, and $299 for the iPhone 6 Plus. They would get a lot of people buying the mid-range size and make an extra $50 to boot. Then they could keep the smaller size at the same price point. The main thing I wonder about is if they couldn't get the 4" size to match the design of the others because they couldn't quite get it thin enough, but if that's right then that doesn't explain these reports of a 5s type design.