Latest Version (iOS Support)
mattgemmell.com
mattgemmell.com
Also, why automatically target the latest and greatest? The app I'm working on doesn't use any 5.0-specific features and I would imagine that a ton of apps are the same. Develop for iOS 5.0 when you're using a feature it provides.
No doubt they'll start doing this to the 3GS et al at some point, but Apple still sells the 3GS right now so it will probably be quite some time before it stops getting OS updates. I think that is the case of devices that don't support the latest OSes, they can be ignored, and newer devices losing out on hypothetical future OSes is a bridge which can be crossed when it happens.
While all the stated reasons are correct and beneficial, they are only to one party - the developers themselves. And unless all your money is coming from the developer (which by definition is not), you probably want to care more about what your users need and want rather than tell them what you can and will not support.
Running a business (a profitable one) is all about meeting customers' needs, expectations and wants. No matter how ridiculous they are. No matter if they are wrong and you are right. No matter if they are running your app on a machine from the 90's while you only support the latest and greatest HTML5/Canvas/Node.js/blah blah.
One customer that you don't support is not just one customer that you've lost. It's one customer that you've turned away from your product AND incentivized to spread the bad karma to everyone they talk to about your product. The next time they hear someone discussing your product, they're going to chime in "Yeah, I loved using them until they turned me away by not supporting <whatever version they had>. They don't care about me at all." While this statement is false or at least untrue (I'm sure you care about all your customers right?), the reality is that it doesn't matter. They are spreading a negative review and it's only going to fester and grow from that point on.
So whenever you're ready to build a business out of your successful website/app/whatever, remember that you need to support whoever is ready to pay you. That's all that matters.
Getting the last few percent of users to upgrade (assuming their devices support it) will be even easier now that iOS has PC-free software updates.
Don't kid yourself that instapapers numbers are fully correct as Josh mentions as they are Sku'd because his app is built to work best with iPad and therefore all OS's will be higher. iPad is also owned by more tech savvy people and thus they are more likely to upgrade.
If you are making a simple app which has a nice interface always aim for lowest common denominator. If you are making a 3D game cut your losses and use the tech of opengles 2.0, if you are somewhere in between, always aim for LCD and you can always put your OS up if need be.
The missing ability to cut a new paid version of the same app is an oddity of the iOS App Store. Some app versions should have limited free upgrade lives. You should feel dirty upgrading from GoodReader 2010 to GoodReader 2012 without contributing to the extra years of development.
Apple could add the feature, but they would have to stop blatant abuses (like AdBlock saying there's a new version every day). A simple version EOL of 12 months with a 6-week-back free upgrade period would be sufficient. In the Updates tab, your [Update] button gets replaced with a [Purchase Latest Version] button. Problem solved.