Indeed. I still remember the days when 4.3" constituted a monstrosity that was too big for anyone other than a crazed xda'er. I spent a little time last year looking for sub 3" droids. They exist, but it isn't a pretty category even if you have low standards. I remember the WebOS based Veer fondly, wish that was an area still attended to.
Samsung, if the Exynos 5 rumor is true, is taking this mid range a little more seriously than last year, but the one galling thing is that if it is pentile, it isn't competitive (much less an upgrade) in terms of subpixel density with my 4 year old touch pro2, which wasn't cutting edge even back then. This in the midst of a pixel arms race that has almost absurd 1920x1080 resolutions on 5" devices.
I think there's room for a small (relatively speaking) high end droid to succeed these days. Large isn't going away by any means, but while everyone dukes it out for the best 4.8-6" category, one smart company could steal the show and be the only company seriously competing at 4" (other than apple). Instant differentiation.