Wow, talk about buyers remorse. The iPhone 5 isn't even out yet, and you're talking about how the iPhone 4 is a better buy?
Tell you what, everyone thought the iPhone 3G was fine and gave very similar excuses not to get the iPhone 3GS, and now look at the iPhone 3G it's become obsolete while the 3GS is still kicking it for yet another generation.
Excellent post Reach9.
I have been waiting for the '5' and was recently offered an unbelievable promotion on the iPhone 4 and a plan that will save me $600 over 2 years. I know exactly what I'm getting in the iPhone 4 [regarding limitations] but the savings are just too good to pass up. If there's just ONE THING I could get on the iPhone 4 it would be a faster processor. Enter the 5.
OP, the processor IS the big upgrade. I have a 3GS and it was lighting quick until about 4.3. Now, it's laggy to the point that it's becoming an issue. The same will probably happen to the iPhone 4 as the OS develops. It's not much quicker than the 3GS and its performance overhead is quickly getting erased. Performance wise, it's the iPhone 3G of the future...the last of a generation that will soon fail to support some OS abilities, or will run them poorly. I think it's great that you've got the 4. It's an excellent phone. But justifying the purchase here is unnecessary and I mostly disagree with your reasoning.
I also think too much is being made of the camera. The iPhone 4 has an excellent phone camera. There's so much speculation about a "better camera" but the only hardware rumor I've seen indicates 8 MP. All other things being equal that won't provide any improvement on the sensor size these phones are using and I would actually prefer 5 MP for various reasons.