Nobody knows what Apple will do till they release info themselves, which is going to be months to come. I seriously doubt they will stick with 3.5" though, there is way to much pressure and demand for a larger phone, no not Note sized or anything like that, but obviously majority want at least a 4" screen. Look at every poll on ever forum, 4" always wins and Apple monitors this and other boards, hell like any company they monitor forums in general (that even have nothing to do with Mac's) when they pick up any chatter like this.
I'd bet cold hard cash that if Apple were to send out a mailer to every single iphone user and gave them multiple choice of what screen size they would prefer, 4" would win over the 3.5"
It's not like the phone would be massive or anything, hell my GSII has a 4.3" screen yet in a form that's barely larger then the 4/4S case. If other's can do, Apple can do it.
If Apple can't sell you on iOS, it's app store, customer service, user experience, and design then really I don't see why screen size will make much of a difference. I would concede that screen size matters for some, but the majority of smartphone users will not turn down iPhone because of the screen size.
I think iPhone has shown that 3.5" sells just fine. Will some be turned away. Sure. But they'll also attract new customers with other features.
Now don't get me wrong, I think a 4-4.3" screen would be a nice improvement in the next gen phone, but I would be ok if it stayed at 3.5".