Considering Apple sold a record # of iPhones last quarter, I'd say they're giving the customers exactly what they want.
So cause they sold "a record # of iPhones last quarter" that means that the old notification system is better than the new one? That means people don't actually want a better camera? or perhaps a better screen? better reception? lock screen activity etc?
Technology moves in a quite ridiculous pace, they sold a record # of iPhones with every iPhone so what you are saying is that after every record they should've stopped innovating.
On the screen matter, a 3.5 to 3.8 is probably be optimal. Not to small for the most and not to big for most people. Apple has only got 1 phone, so that phone has to fit as many people as possible. Samsung, HTC and then release phones that go from 3.5 to 5" cause they've got something for everyone. So too big is bad, cause they will definitely miss out on a lot of (female) costumers.