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I'd love to see Apple piss away 18 months and another refresh on making the screen size .2 inches larger. Ever hold a Google Nexus S? 4" is exactly what the iPhone 5 is going to be, Apple wouldn't waste their time any other way. Simple as that.

Why do people think that the iPhone needs to surpass or be like a Google phone?

Apple focuses on minimalism and functionality, so I don't see them trying to phisically copy android/google phones.
 
If they increase the screen size (and thus, decrease the DPI), there are certain people, myself included, that will always prefer the higher pixel density in lieu of screen size. This is one of the reasons that I love the iPhone 4 - no other phone has such crisp text or icons.

As others have speculated upon, I don't think Apple will change the native resolution, since every app in the App Store is already configured for the iPhone 3GS or iPhone 4 screen sizes, the former being exactly half that of the latter. And in my personal opinion, it would be a mistake to make the screen larger, but sacrifice pixel density.

In a perfect world, the October 2011 iPhone will have the same display as the iPhone 4, whilst upgrading other components of the phone, and the 2012 iPhone will have a resolution exactly 1.5 times that of the iPhone 4. :D
 
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