There is nothing magical about any particular screen size. It is a trade-off among the 3 dozen or so other factors by which a display will be measured. For mobile devices, cost, convenience, and battery life consumption are the main factors in the equation of which screen size is a result. As thinner and lighter notebooks allowed for bigger screens, thinner and lighter screens allow for bigger screens in smart phones. Improved resolution in screens allows for smaller screens with increased visual bandwidth in tablets.
The introduction of a bigger iPhone and smaller iPad, narrows the gap between smart phone and tablet devices ever so slightly. If rumors are to be believed, Apple initially rejected the idea of a sub 10” tablet due to the difficulty of inputting data (typing). That and the ability to conveniently be viewed by multiple viewers are the prime differences between a Tablet and smart phone today. As smart phones run into the resolution limit of the human eye, about 220 dpi for older folk, increasing the display size becomes necessary in order to run more visually complex apps and display advertising. However, although there is no magic barrier that determines what is a pocket sized device; smart phones are already quite large for most pockets.
In “The case for a flexible touch panel keyboard,” (published in Touch Panel, Sep 20, 2009), I make the case for a second, roll-out, screen for phones. The roll-out screen could serve as a keyboard or as the primary viewing device when there needs to be multiple viewers. Such a configuration would narrow the Tablet/Smartphone gap even further or eliminate it entirely. In other articles, I have argued that due to the increased cost, the market making application of OLED technology will be one that makes use of the technology’s physical flexibility. The scroll design will find some application long before it is needed to rescue the crew of an unfortunate Mars landing (reference the movie "Red Planet"). I expect that it will be a new form of the tablet rather than just as a display.