Perhaps Apple could call a larger iPhone “Retina” even if it was “only” 264 PPI. The problem with a 264 PPI display is that it seems to be a dead-end resolution. There’s no obvious upgrade path for that display. The iPad mini, introduced at a relatively low 163 PPI, does have an upgrade path: Apple just has to move it to the standard 326 PPI display resolution.
Yes, Apple can have a 264 PPI product while others are in the 300+ range, because when all is said and done, the only thing that matters is if that 264 PPI display is beautiful enough, on an absolute scale (or relative to iPhone 5) to be able to stay there for a good while.
So, I now believe, Apple will have given the 264 PPI 4.9″ display a trial run on some prototype devices, and if it looked superb despite the lower number PPI, that would be grounds to make the appropriate compromise (lower PPI, but easier for developers) and release at 264 PPI. If it doesn’t look superb, then they’ll go to my previously predicted 326 PPI and force developers to do more work.
[Edit Feb. 22 2014: Competitors are announcing smartphones with 500-600 PPI screens, and while it seems to be overkill, they’re still doing it. Perhaps it is just another form of the “megapixel race” camera manufacturers participate in, but still, we’ll have to see these screens before dismissing them outright as “marketing”.]