Marco Arment speculates that a 5" iPhone isn't as unlikely as it seems, and mocks up how it might look.
Why would Apple release this?
First and foremost, there’s significant demand for larger-screened phones. As much as we make fun of the Galaxy Note, it sells surprisingly well, especially outside of the United States. Other large Android phones sell very well almost everywhere.
The iPhone has lost a significant number of sales by buyers either wanting a larger screen or being drawn to how much better the large screens look in stores.
While I agree the iPhone has lost sales because of the lack of a larger model, I don't know if it's 'significant'. I believe Apple haven't made a larger phone yet because they think the current size is the best they can make and is selling incredibly well.
Personally I prefer smaller to larger phones, I even find the iPhone 5 screen slightly too big. But the iPhone is now the only device in the iOS and Mac family not to have more than one screen size.