Is it? When Apple introduced other screen sizes in the form of tablets, they required completely new layouts. Will they do that again for larger phones?

The 3.5/4 inch size is very much ingrained in the design of iPhone apps. For example: many apps require reaching into the top left corner for navigation - this has been a HIG recommendation since 2007. Reaching to the top left of a device hard to do on 4+ inch devices. Android and Windows Phone have mostly avoided this, meaning you can operate your phone without reaching into the top left corner. This considerably increases the things you can do on large Android/Windows phones with one hand.

The dev tools have included variable sizing help for several years now. Anything being made now should be using these features to deal with different sized phones, even if just the 4 size and 5 size. Certainly it will make some people's lives difficult it they increase the width of the next phone, but developing new apps now it is easy to handle.

The bigger problem is all of the legacy apps that were designed with pixel perfect backgrounds that weren't meant to be stretched to fill different sized phones. Those have to be redesigned (and probably should have already been for iOS 7) to work for bigger phones.

This. Now that there has been time for apps to be updated for iOS7 and the iPhone 5 size, the transition to variable sizes will be a much lower impact.

Also, it is clear that different sizes of phone will still use the 'iPhone' UI idiom, rather than the 'iPad' idiom.

Basically if you are paying attention to Cocoa, you'll know that they're ready.

(Speaking as someone who has a pixel perfect app in the store, popular for it's design, that is very painful to make flexible)

yeah i've got a few apps like that as well. I've updated some, and kept some that are more popular. Not sure what I'll do with a bigger phone. we'll see how they look I guess. Not sure if the work is better spent updating old apps or making new ones.