Just look at the sales numbers for things like Galaxy Note, Galaxy S3, and HTC One X.
Huge screens = huge sales.
Personally, I'm salivating over the Galaxy Note 2, which should have an even bigger screen than the original.
And is that proof that people want big screens? No. The iPhone is much smaller than those but outsells them all put together. Is that proof people want smaller screens? No.
First, I think there's a case to be made around sales numbers not reflecting customer interest in individual features. Consumer electronics sales seem to be mostly driven by advertising, not utility.
I think you might be comparing Apple's against our ranges. If the same generation iphones came in two sizes, but were otherwise identical, and yet the smaller version was preferred, you might have a point.
But android phones can be different sizes and similar features. This allows those who prefer smaller phones to get what they want and those who prefer larger phones to get what they want.
Some of us are big and tall with big hands that tend to be a lot more comfortable with bigger screens. Because we are bigger and stronger, we can easily carry the bigger phones like they were small toys and we have bigger pockets to put them in. Don't try to tell us that we should prefer smallish screens that cause us to squint and accidentally finger the wrong hyperlink. Be happy that we have choices, unless you are an Apple iphone user that is worried that their "ONE CHOICE" will be too big.
Honestly, if I can casually use a larger phone and it feels more comfortable in my hand, then it makes more sense for me to use a larger phone since I use it a lot and I can make better use of a larger display. You don't see people(normal people) complaining about their monitor being too big. So obviously people like a larger display if they can comfortably handle them.