Apple has been very consistent with the iPhone screen size - 3.5 inches and that's it. Of course, four iterations of equally-sized display didn't discourage the bigger iPhone or iPhone nano rumors. The latest in the series is a photo of an alleged iPhone 5 screen digitizer, which shows a much thinner bezel around the screen.
Now, a thinner bezel is great - it lets you do things like keep the screen size but shrink the phone or keep the phone size and upsize the screen. Or you change both measurements, of course.
Photo of iPhone 5 screen digitizer
Assuming the width of the phone hasn't changed (judging by Steve Jobs' past statements this seems the more likely option) we can try to guesstimate the display size. After some measurements and some math we ended up with just under 3.9" for the iPhone 5 screen diagonal, with should allow a margin of error because of the angle at which the photo of the digitizer was taken.
This seems pretty close to the rumor of a 4-inch screen for the fifth-gen iPhone. Or if we follow the iPhone mini rumor, then a 3.5" screen can fit into a pretty small phone. There are mockups of both versions floating around the net - you shouldn't put too much stock into them, but they should give you a general idea of what to expect.
All this guesswork could have been avoided if the person who took the photo had a ruler on them. Anyway, what would you prefer - same size iPhone with bigger screen, or same size screen with smaller iPhone?
Either way, the iPhone 5 should be official this June (Apple keeps to their product schedule). Aside from the screen, the 5 is rumored to have a dual-core Apple A5 CPU, better graphics and NFC.