Why does the iPhone have a 3.5-inch screen? Why do larger smartphones feel awkward on your hand? Dustin Curtis has an answer, and I think it is spot on:
Touching the upper right corner of the screen on the Galaxy S II using one hand, with its 4.27-inch screen, while you're walking down the street looking at Google Maps, is extremely difficult and frustrating. I pulled out my iPhone 4 to do a quick test, and it turns out that when you hold the iPhone in your left hand and articulate your thumb, you can reach almost exactly to the other side of the screen.
Which is exactly why we would never see any larger screen iPhone. [dcurtis]