I think Apple will increase the screen size for the following reasons:
Larger design means more space for larger battery which will be a must for LTE.
Going to an HD class retina display would make everything tiny on a 3.5" screen.
Since Apple does a refresh every other year, that 3.5" screen would be the standard until 2014.
Even a mild increase to a 3.9" screen would be work people into a frenzy and move a few million iPhones even faster. It would decimate...