3.5 Inches
The reason the iPhone 4's screen is 3.5 inches is because the iPhone 3GS was 3.5 inches is because the iPhone 3G was 3.5 inches is because the original iPhone was 3.5 inches.A consistent platform is a huge deal. The whole point of the iPhone is that it's touch friendly. Part of the iOS user interface guidelines is making sure touch areas are the size of a finger tip. This is heavily emphasized.If there were different sized iPhone screens with incompatible aspect ratios this guideline would be meaningless. An app that has finger sized touch zones on a 4.3 inch widescreen phone would not on a 3.5 inch standard screen phone.Apple's designers know this. It's on purpose. And Apple's designers decide what its devices look like. That's why the iPhone 4 has a 3.5 inch screen.If you want to wonder why the original iPhone had a 3.5 screen, you've got to go back to 2007 when everyone else was still trying to copy the Blackberry. A 3.5 inch screen at that time was already unprecedented.I don't doubt Apple prototypes iPhones with different screen sizes and there is pressure to upgrade. But the fact Apple has not just shows how reluctant it is to break with consistency. If Apple moves to a new screen size, I think it will have to be larger for backward compatibility with old apps. I highly doubt it will go smaller, ever. All old apps would suck on a smaller screen, and Apple doesn't deliver sucky user experiences. And if it does go larger, it will be a big deal. I wouldn't expect a new screen size for a long time after that.