It's about compromise. A smartphone with a one inch screen would be an obviously stupid idea, as would a smartphone with a ten inch screen. Seen that way "bigger is better" or "smaller is better" doesn't even make sense.

My claim is: 3.5 inch screens are a good compromise, allowing for comfortable browsing, reading and writing. The additional screen space would never be worth the additional bulk (also: uncomfortable one hand use) for me.

That's all about personal preference.