There's this thing called competition that wasn't as intense when the iPhone first came out. Apple can't get by with just a couple minor upgrades, remember, unlike competitors, they bring out a new phone once a year, so the iPhone 5 has to stay competitive until summer 2012.
I think hardware wise we will likely see these changes.
1. A bump to 32/64 GB, they skipped a year upgrading storage, and prices, size constraints, and availability means 64 gigs should be coming.
2. Ram upgrade to 768 (Hopefully).
3. New design
4. The dual core A9 chip since Apple is all about battery life.
5. Better camera, I'm hoping they put image stabilization in it.
And for software.
1. A real notification system, finally!
2. Some big changes to the os.
3. The ability to respond to texts from anywhere just like jailbroken phones have been doing for years!
I'm sure there will be more software changes but I have no idea what they'll be.