Higher than 163ppi?
Show me some (out of curiosity if they exist).
the iphone's screen is nice and all, but its by far no the highest PPI possible
iphone, 3.5" and 320x480px
blackberry bold, 2.8" and 480x320px (smaller screen, same resolution-> higher PPI)
sonyericsson xperia, 3" and 800x480px (more than double the resolution on less the space)
htc diamond, 2.8" and 480*640px
as i recall correctly, some medical displays have an even higher PPI that is really crazy (but necessary).
however, as someone other pointed out, with a higher PPI, all the buttons, fonts, and keyboardbuttons getting smller making it even harder for some to type.
i'd rather have the same screensize (3.5") and double the resolution (480x640px) than a smaller iphone.
upscaling, especially with the iPhones interface is propably much easier than downscaling. and the websites and maps and pictures and videos are much more sharp and crispy