When mobiles only really served one purpose, phone & texting, the cool thing was to keep shrinking them until you could hardly use the buttons :-)
Today there are 100's of different phone models to choose from and there are many to suit your needs.
The iPhone has one intention, thats to provide people with an excellent display enabling features like surfing and email usable. They achieved that and will continue to improve other features over time including the hardware specification (camera etc) and make the software even better.
I have used many devices over the years and quite frankly you cannot get a great user experience of the web , email and watch video's etc if your phone is a small device like you are requesting it to be, so I think your asking a bit much for the iPhone to get to that size, it would just destroy the whole thing!