I'm not saying it needs to at all. To some extent, I agree it doesn't (though it'd be nice to be able to open more than 8 tabs in Safari, or have true multitasking, no?). But I'm also not pretending that Apple is pushing the boundaries hardware wise (nor software wise, in my opinion).
I'm simply calling for intellectual consistency. Either they are innovating and pushing the boundaries, like their entire philosophy dictates, or they're not.
You're right there's not much to be done about a rectangle touch screen, so where can they improve? Well, other manufacturers are finding ways. Where's NFC? Where's LTE (okay, we may finally get that for the iPhone this year)? Where are the larger screens to meet the obvious demand (okay, we may finally get an additional .5 inches this year)? When are we going to get rid of the home button to finally put to rest those home-button failure/dust issues? I'm sure there are others (like wireless charging, or beaming, two things which Samsung is trying to introduce).
And software wise, the biggest feature in iOS 6 is Maps/Navigation. I mean, that's great for iOS devotees, but again, is this innovating? To me, what's more inspiring is Smart Stay (the phone checks to see if your eyes are open and actively reading to remain on? That's genuinely smart!), or tilt to scroll, or direct dial via proximity sensor. (Bare in mind, I'm not even that big of a fan of the GSIII...)
The last time Apple inspired was with the iPhone 4. And if the rumored leaks and specs do become the next gen iPhone, it's okay to finally say Apple isn't innovating anymore. Blasphemy, for some.