Is it a tablet? Is it a phone? It's the Galaxy Note! The 5.3" device from Samsung has caught the attention of a lot of people all over the world with its very generous screen and high 1280x800 resolution. Samsung has already shipped 1 million units before it even launched in US, and that is pretty surprising for such a large device that you'd normally think will only appeal to a niche market.
So either this niche market is a lot larger than we think, or the larger 5.3" display appeals to a lot more people in the "mainstream". The appeal of the Galaxy Note comes from the fact that it's the maximum size a phone can have while still fitting in a pocket and in the palm of your hands. You get to enjoy movies and games on a larger screen either on the go or in bed, and it's especially good at that because of its HD resolution, which means you can watch Netflix and other shows at their native HD resolution.
The Galaxy Note success will not be a one time thing, and I'm certain Samsung will continue this trend of larger smartphones with the Note's sequels. I also think there will be other manufacturers who will they their hand at this. The 5.3" may not be for everyone, especially for people who talk a lot on their phone and would have to use such a large phone near their ear all the time, but for many others it's actually better than a 4.3"-4.5" phone.
The acceptable size for most people will probably remain somewhere between 4" and 4.5", but this is why the Android ecosystem is great. You actually get to choose the phone that suits you best and you're not forced to have the exact same phone that millions others have.