Two iPhones are reportedly currently in testing over at Apple factory - named with code N41AP (or 5,1) and N42AP (5,2). They are enclosed in generic cases to hide the design and offer larger displays with a higher resolution. The exact specs of the new display are 3.95" diagonal and 640 x 1136 pixel resolution. Those sizes suggest a pixel density of 330 ppi, which is nearly identical to the 329 ppi on the iPhone 4 and 4S, so the "Retina" display will remain intact.
If this information turns out true it will mean that the next iPhone will sport an aspect ratio of 16:9. The bigger display would also require the next updated iOS ( iOS 6 more precise ) to be optimized to fit more content on the bigger screen. Apple is currently testing a custom build of iOS 6 with a fifth row of icons above the docked ones.
Reports are coming in that the next-gen iPhone will retain the home button and utilize a smaller dock connector. Maybe The home button will be reduced a little in size but will be there 100%. One thing is certain - with the huge screens fitted on the latest Android flagships (Galaxy S3 ) many iPhone users are rightfully starting to feel a little jealous and it's about time Apple to do something about it.
Note: This image is only to indicate the difference of the size between iPhone5 and iPhone4 made by me. It doesn't represent the final product.