How is going 0.8" up a 50% increase?
4.3" / 3.5" = just under 23% increase in each direction (assuming the same aspect ratio), which means a 50% increase in area (actually almost 51% but 50% seemed a nice number to round it down to as the numbers aren't that accurate).
Increases in one dimension often result in unintuitively large increases in two dimensions (for me at least). And even more so in three, which is why I'm hoping it will be thinner to compensate!
This is why it seems a nice compromise to me - if they can make it 0.4" longer and 0.3" wider then they could fit in a 4" screen, and then use edge-to-edge technology to make it 4.3", then the screen area would be 50% bigger.
In fact there is probably enough space to fit it in without increasing the height too much, depending on whether the larger home button rumours are true.
The downside is that the ppi would drop to about 265, which isn't really retina, but I could live with that. I doubt they would change the resolution as too many apps depend on it, but you never know - they may introduce some sort of "border" for backwards compatibility.
For example adding a 60 pixel border top and bottom and a 40 pixel border left and right would maintain the aspect ratio and give a 4.3" screen at 1080 x 720, which would have just under 300dpi, which is retina levels.
It would actually mean that apps designed for 960 x 640 looked the same as ever on an edge to edge screen. The border could be black or white depending on the colour of the phone. But new apps could use the extra pixels for whatever they want. Basically existing apps would work in a similar way to iPhone apps running pixel doubled on an iPad.
I'm not suggesting that they will do any of this - just that I would be happy if they did!