I definitely don't want the screen to be any smaller. I would actually go the opposite direction: slightly larger, but still pocketable.

For the device being smaller ... only if it can still house the same functionality + growth due to the advance of the device category. More Ram, more storage, more battery, both mini-usb for client/charging, and micro-USB for host/otg, 3.5mm headset jack, some type of SD card slot, as well as adding the internal 3G circuitry, and some form of display-out capability (I'd prefer mini or micro dvi-i out). I don't see that giving much capability to make the device smaller.