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Apple.pro has posted photos comparing parts of the iPhone 5 camera components alongside the iPhone 4 camera components. (via 9to5mac) Notably, the iPhone 5 rear camera does not come with an integrated Flash attached to it. This would suggest that the case photo posted earlier today may be accurate, and that the next generation iPhone's camera flash will be located separately from the camera.
Apple.pro offers this photoshop mockup of the camera and flash in separate locations:
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Top Rated Comments
Ideally, you want something like
but it does make it harder to carry your phone.
In dusty environments, it minimizes back-scatter increasing contrast and color saturation. Likewise, keeping the flash separated from the entrance pupil helps minimize red-eye.
It will increase cost since it will make a single module 2 modules and a single large hole 2 smaller holes. Might be why others don't do this and instead simply add MP. Adding MP is literally free and on these small sensors degrades IQ substantially; easily influenced spec miesters, however, don't really care.
You'd quickly learn that you were holding it wrong.
There's nothing wrong with shadows, as they make the subject look more real and less "flat". You get a "flat" effect from flashes due to the fact that the light source is too close to the lens, thus lighting the subject from the center and creating a very thin contour with a sharp shadow, which is very unnatural.
Though the placement of the flash is still very close to the camera, it won't change much. It would need to be 20-30 cm away to for a noticeably better effect, but the iPhone isn't big enough for that :D