Going up in size just makes no sense whatsoever. Sure, it's going to disappoint those of you out there that are already on the fringe and talking about getting an HTC or Samsung Super Awkward Droid Bionic Pocket Expander.
It's a common thing in consumer goods - for manufacturers to make things bigger and bigger, but what most people on these boards who complain about the 3.5" screen don't understand is that Apple thinks beyond just the iPhone. If the iPhone was their only product, then sure, it would make sense to offer a maxi, original and even a smaller form factor mini iPhone - ala iPod formula of the past.
The thing is, they're not thinking this way, because they have the iPad and Macbook Air and iMac, Mac Mini, and quite possibly Apple Television coming soon.
You have to think BIG and that doesn't mean thinking about making a 4" to 4.5" screened iPhone. Think big as in the entire Apple line and how you really, as Apple, want consumers to cover all the bases, not just settle for a single iPhone (with some awkward size that is too big to fit in pocket or purse) and not quite big enough to function like the iPad.
I said this before and I'll repeat it - given it's already being reported, that Apple is going to push forward with cellular connectivity on the iPhone, iPad (and not just cellular data), Macbook Air/Pro, iMac and quite possibly their new Apple Television.
By doing this, Apple will change how we think about communication. Things like Skype have already given us the ability to do this, but the mass shift will occur when you can pull out your iPhone, iPad, or MBA and have the same ability to simply call or take a call using any one of the devices - seamlessly.
It's easy to see why they have bought into the crowd voice recognition, because they're needing to make speakerphone capabilities better to adapt for use in devices beyond the iPhone. Same with Siri.
I for one would love to be able to, as I'm sitting at my desk in my office take or place a call right from my mba, just as I do using Skype now. Or to then swap the call over to my iPhone as I leave to go to a meeting or onto my (not yet purchased) iPad so I can walk around the office to show off some new products to the person I'm talking to.
Apple is clearly thinking big - but it's just not big as in giant screened iPhone.