Comment Smaller Screens are Out (Score 1) 2
Smaller screens mean developer headaches for both iOS developers and 3rd-party developers alike. Changing either the size of the interface or the dimensions of pixels that make up that interface would mean that developers would have to re-factor their UI's for ANOTHER iOS device. Not an appealing prospect.
App Store submissions aside, pretty sure Apple doesn't want to piss of their developers with another set of specs to adhere to in a new device.