At what point do we see diminishing returns, with regard to screen size. Given that the iPhone 4 has a very crisp display, the need for a larger screen has been blunted to some degree.
Also look at the battery life of needing to drive a larger screen. Apple has been pushing longer and longer battery times, and by going with a larger screen, that goes in the opposite way.
Just look at people using the EVO, it probably has one of the worst batteries on the android platform. I'd hate to see that occur on the iPhone, its definitely will be a step back.