I love that they are getting bigger. I had a big issue with the Galaxy Note vs Galaxy Nexus. The Note's 5"+ screen sold me, but the button configuration was last generation (android 2.x), and no ICS, and not the pure Google experience.

HP, ignoring the disaster that they are, really were headed down the right path. A tiny phone, a large phone, and a tablet. Over the years, you could totally see that large phone getting larger and the tiny phone getting even smaller. Great for both me and you. Too bad they went and screwed everything up.

I'm going to buy a Galaxy Ace: http://www.gsmarena.com/samsung_galaxy_ace_s5830-3724.php.

Admittedly it has a weaker CPU and worse screen than the Nexus or the SII, but it should be the right size :) the same as an iPhone, and Android, which is what you ask for, and much cheaper :) (U$ 150 with a 20 dollar contract over here).

If you are willing to go smaller than iPhone, consider Sony Ericsson Xperia ray. It doesn't seem too exciting looking at the specs, but so far there have been quite a few pleasant surprises (camera, overall snappiness, solid construction) and not too much suckitude (unremovable Facebook and SE bloatware, lack of polish compared to iOS in places).