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The problem is most of the bezel is on the top and the bottom. If you look on the sides, there is not that much room to evenly scale the screen up without increasing the width of the phone. No way Apple will change the aspect ratio and go widescreen. So if they really do decide to go that large, you are looking at a phone that is larger overall.
I also think any phone over 4 inches is too big. The disadvantages at that point start to outweigh the advantages. You loose the ability to operate the phone screen with one hand and it looses too much portability. These are phones, not mini-tablets. I would be absolutely shocked if Apple goes bigger then 4 inches and honestly, the odds are that they won't go any larger then 3.85 to keep the PPI in line with the standards they set.
As much as I absolutely love my iPhone 4, I actually have been very unhappy with the screen size for a few years now. That's why I was kinda obsessing with the rumors last year. (And have since learned to really not pay too much attention to them.)
I think a 4" retina display would be a great step forward, but I'd actually be happiest with a 4.5" retina display. Before you say that would make the phone too big, you're wrong. The key would be to keep the form factor close to what the current iPhone is and eliminate the amount of bezel. In its current form, the iPhone is essentially 25% bezel on the front surface when you factor in the top and bottom bezel. You could easily (if technology would allow it) stretch out the current iPhone screen on its sides (in landscape mode) while keeping just a little bezel on the top and bottom. (For some sort of home button on the bottom and front-facing camera on top.)
Perhaps down the road we'll get something along the lines of what I want, but not anytime soon if I had to guess.
The problem is most of the bezel is on the top and the bottom. If you look on the sides, there is not that much room to evenly scale the screen up without increasing the width of the phone. No way Apple will change the aspect ratio and go widescreen. So if they really do decide to go that large, you are looking at a phone that is larger overall.
I also think any phone over 4 inches is too big. The disadvantages at that point start to outweigh the advantages. You loose the ability to operate the phone screen with one hand and it looses too much portability. These are phones, not mini-tablets. I would be absolutely shocked if Apple goes bigger then 4 inches and honestly, the odds are that they won't go any larger then 3.85 to keep the PPI in line with the standards they set.