A few suggestions:
Colors: Don't copy the candy colors of the ipod line. Add a "Product Red" iPhone which helps AIDS funding and also add a "Product Pink" iPhone to support breast cancer. The pink will be a hit with the ladies for its color and the charity aspect; they'll be hits.
Sizes: The only reason I can see for a larger phone would be for older people to read better. However, I don't know if even the huge A$$droid phones are more readible so just stick with the 4". It's not too big but not too small.
If Apple does ever make a bigger phone they'll need to make it a size which will be easy (preferably effortless) for developers to support. Updating apps for the 4" was a pain for numerous reasons. Developers out there...you know what I'm talking about.
Features: Add a more secure way to protect your phone. With iPhone thefts on the rise we need better protection than a stinky 4-digit password. Also, why can the "Find my iPhone" feature be turned off so easily?! I'd like to see advanced finger recognition technology to make the phones more secure while still quick and easy to access.
Also I agree (with another MR user) that iOS needs some more work. Why is it a 5 step process to reduce screen brightness on the iPhone?! There ARE better ways to do things.
Apple needs to make an API for Siri somehow...how neat would that be?!
Quick story about crapDroid; was talking to a friend recently and told her to download Instagram. She found it on the Google Play store but it said it couldn't be downloaded because her device wasn't supported. Instead she could only download an app called "Instagram World" which turned out to be something totally unrelated which looked like crap. Watching the whole experience made me feel more confident about recommending Apple products (especially for non-geeks). If I ever would recommend Android I'd suggest to buy the most popular/expensive phone, however, if you have enough money for that you should probably just get an iPhone and enjoy the premium experience.

Seems to me that Android is mostly popular because the majority of phones are cheap and are pushed hard by salespeople because they get a bigger commission. The you have übergeeks who are bent on customization and hardware specs.
Really though Apple is to blame for Androids rise. It was a huge mistake for Apple to sign such a lo g exclusive contract with AT&T. If they would have come out on all networks Android would never have gotten a strong foothold. I heard from SO MANY people initially who said they'd love an iPhone but can because they aren't on AT&T. What a shame. Not sure what could be done internationally (where android is much stronger)...it's tough in foreign markets where people can't afford the Apple premium price. However, if Apple didn't get locked down with AT&T, I'm sure Android would be relegated to ONLY foreign markets and niche users.