People were expecting a 4.3" screen, thinner case, 4G, and a longer battery life. What they got is a two year old phone with an updated processor that matches what other standard phones have today. Hence the drop in Apple stock yesterday. Apple releases innovations, and this seemed to be a lot of hoopla over a minor update. They gave the image of "we're no longer on top, we're struggling for ideas."
The new iOS 5 didn't impress either: it's main hallmark Suri (voice command) is viewed in the same light as Facetime...cool to show off, but nobody really uses it.
The new iPhone is being viewed as a stopgap to keep relevant among competitors with more advanced products. I was waiting to see what they released because I want to buy an iPhone for my daughter for Christmas. I'll probably just get her an upgraded older model for $99.