Definately.
Obviously I'm not expecting Apple to put in a 5" screen and make the thing too big to hold, but for me to buy the next iPhone, it should compare to some of the Android phones out there.
Samsung just announced a new LTE version of Galaxy S2 for Korea with a 4.something HD AMOLED screen. It's short a few PPI of being "Retina", but it'll look gorgeous nonetheless. It's only a matter of time before we get these sorts of screens over here, and I really think that Apple will need to be able to compete with that.
Having said that, and despite the angst floating about at the moment about the possability that only a 4S will be announced, I highly doubt Apple will rest on their laurels with the next generation of iPhone seeing as:
a) It's the first post-Steve announcement, they will want to put up a strong front so they dont't seem weakened.
b) It's been well over a year since a refresh, if they were going to just release the 4S, they could have probably done it ages ago.
c) The competition is really stepping up their game, even Apple must realise that consumers will only be loyal to a certain degree.