Since its debut, the iPhone's screen size has remained the same. It's gained pixels, sure, but the dimensions have long been a selling point as "standard" across the line. As Apple has extended iOS updates downstream, this has also become a powerful selling point for iPhone "feature" phones. Formerly that was the 3GS, but the 4 is now becoming free on contract in some cases.
The iPhone 5 now has a larger screen. Older apps will run in letterbox mode, but as someone who worked at Blockbuster Video back in the 90s, I can tell you consumers don't "get" letterboxing. Consumers will expect developers to just make it look right. Probably using magic.
