For hardware, I'd like to see dual core, 64GB, reception issues resolved and the home being made touch. I'm not bothered about larger screen unless the resolution increased with it, iPhone 4 may not be the largest screen but it's still got the highest resolution.
IOS 5? Needs to have better camera control and better bluetooth utilisation. I don't know of any other phone that can't bluetooth a picture to another phone. Serious work needs to be done with the camera roll and photo album. Need iTunes to create, modify and delete albums? Come on.
Would be great to have built in security settings too. We all have pics and videos we want to keep private. Yes, you can buy apps for this but it would be better built in.
Better integration between IOS and apps would be perfect. Netportal, Quickoffice, Dropbox, Bump etc, all able to fully integrate with each other and IOS. Maybe that can all be done now, I'm not sure.
Having moved from Nokia 95 8GB last November, I'm not sure what the fuss is all about with notifications?
One thing that also needs to be done is the iTunes application for the desktop. It needs to include methods to control the iPhone's calender, phonebook and so on. Synchronisation is also confusing, I've had my apps dissapear, icons moved to different screens ..... Something that works similar to Nokia's PC Suite.
Connectivity to iTunes via wifi.
Lastly, cut the cord between iPhone and iTunes. I'd prefer not to need to have a desktop to use my phone.