For me, the ideal screen size and form factor are:
Screen: 1280 x 720 pixels, 4.5 inch diagonal (99.6 x 56.0 mm, 326 DPI)
Phone: 125 x 65 x 11-13 mm, < 175 g
This is just about the size of a Motorola Droid X (127.5 x 65.5 mm according to Wikipedia). I’d opt for a bit thicker than the Droid X’s 10 mm to either get a better camera (like the Nokia N8) or better battery life, but I don’t like physical keyboards.
The resulting DPI for this screen is 326, which is exactly the same as the iPhone 4. Since I don’t see higher pixel counts (like 1920x1080) being likely in sub 5” displays anytime soon, the only way to get a higher DPI is to reduce the screen size which is of no value to me - I want the biggest possible screen I can fit in my pocket..
For the phone dimensions, I'm assuming 4.5 mm borders for width (iPhone 4 has 4.4 mm, so it's doable) and an average of 12.7 mm for top and bottom borders (say 10.2 top, 15.2 bottom) which should be enough for microphone, speakers, and 4 buttons.
I’ve made a mockup of this size phone out of wood and carried it around for a while in my front pants pocket. It seems just right to me. If anybody thinks 4.5” doesn’t work for a phone, I encourage you to try the same: 125 x 65 really isn’t that big.