Apple has introduced all three iPhone iterations during the summer, starting with the release of the original in 2007. Given the fast-moving nature of the industry, Apple will most certainly introduce a new iteration of the iPhone next year, if not during the now-typical summer season, then for sure before the holiday season of 2010.
Considering the iPhone's strengths and weaknesses, as well as the state of the competition, the following is a look at what the likely "4G" iPhone will look like. It is based not on sources, but extrapolation of current trends and an attempt at reading the market, so while these predictions are conservative, I also think they're fairly likely to come true.
When it was introduced in 2007, the iPhone boasted one of the best screens on a mobile device, however it has not changed 2 and a half years while phones like the Motorola Droid or HTC HD2 have been introduced with larger, higher-res screens(3.7+-inch, 800+pixels). Apple clearly has to upgrade the iPhone's screen soon to remain competitive, however one of the iPhone's advantages has been providing a unified platforms for developers where all devices have the same screen.
Thus, I think its highly likely that the next iPhone will have a 960x640 screen impacting existing applications minimally by upscaling everything by 2. Developers will have to upgrade their image resources, but impact beyond this should be minimal. In addition, given the increased density, I think the screen will be bigger than the current 3.5". By cutting back on the large amount of dead black area on the face of the device, Apple should be able to fit in a 3.7-4" screen without noticeably altering the device's profile.
CPU and Memory
The 3GS gave us a much needed speed improvement, but the iPhone is still a very resource-constrained device, so while I think the CPU may see only a moderate speed increase (maybe 700Mhz compared to the current 600), I think the device's RAM will be doubled to 512MB.
Given the high-end nature of the product, the call and connection quality of the current crop of iPhones can be described as "mediocre" at best. In positioning the iPhone as a gaming, internet and multimedia device, Apple has been able to get away with this so far, however I think the next iteration of the iPhone will have some noticeable improvements in its DSP, as this will improve one of the product's biggest weaknesses.
The current 3MP camera is pretty average and improving it seems like low-hanging fruit, so I think we'll see at least a flash and possibly a 5.2MP camera in the next iPhone.
I think the current 16GB and 32GB models are more than adequate for the vast majority of users, so I think its unlikely that we'll see a 64GB iPhone.
App Store Genius
With over 100,000 Apps in the Store, it's getting increasingly hard to find new apps. Using your list of installed apps (and possibly how much you use them) and your App Store ratings, it would be straightforward to build recommendation system for the App Store. Apple already has the genius feature working for music and with the Netflix Challenge winner's algorithm being publicly available, they also have access to a top-notch algorithm.
More Developer Power
While I am not very hopeful, perhaps the continued success of Android and its openness combined with continued developer complaints about its review process will convince Apple that is perfectly OK to give developers more power, such as access to system logs or background processing. Phonalyzr is one example of a somewhat popular Android app (currently #8 in the communication category) that is impossible to write on non-jailbroken iPhones.