If companies never changed, and never added new features, we'd all still be using Motorola Star-Tacs, or carrying our cell phones around in briefcases.
I've used phones with 4" screens that were no bigger than an iPhone, they just didn't have the massive, wasteful bezels that the iPhone has. Just about every app can be made better/more useful with a larger screen, and I don't think anybody wants or expects Apple to come out with some ridiculously big 5" screen like some of the competition. 4" really is perfect.
Apple really needs to step it up on the hardware side this year, with iOS falling to the back of the pack, the hardware better be revolutionary. As good as Android 4.1 and the latest Galaxy 3 are, I can't even imagine what they'll be pumping out in the next 6-10 months, the iPhone 5 will have to stay competitive until Fall 2013. It's already lost it's cool factor, and most people I know don't even have a new iPhone on their radar, compared to 2-3 years ago when everybody had to have one. I think fanboys forget that the general population isn't brand loyal like them, look at how quick people dropped Blackberry, if Apple lets the iPhone stagnate, people will drop it too.