Lorraine Luk and Juro Osawa:

The new screens measure at least 4 inches diagonally, the people said, compared with 3.5 inches on Apple’s latest model, the iPhone 4S. Production is set to begin next month, the people said. Analysts have predicted that the next iPhone will come out in the fall.

Bloomberg adds some fuel to the fire with their sources who say that “Steve Jobs had worked closely on the redesigned phone before his death in October.” Which gives me some more hope that if the next iPhone does have a 4-inch display it will be for some very good reasons.

There’s also been a lot of talk about how Apple will change the design of the iPhone to incorporate the larger display. And, Rene Ritchie has done a good job running down the possibilities.

I’m of the opinion that if Apple were to change the iPhone’s display, making it taller and keeping it 640 pixels wide is probably the best bet. It will make older apps look better on the new display (by adding black bars to the top and bottom) and will make it easier for developers to port their apps to the new display size, since apps are already more flexible with vertical height to account for the larger status bar during phone calls.