I went from the Inc 1 to the Inc2 and I'm really liking it. At first I didn't think the Inc2 was a huge improvement from the Inc 1, but after reading more about it from people who actually own it, I realized it's the phone I really wanted. It is a much faster phone, even though it's also rated at 1GHz. It's a newer processor with an upgraded graphics chip and also has more ram at 768MB. All that combined makes the Inc2 a much faster phone. The battery life is also much much better, it can easily last twice as long as the Inc1.
The Inc2 is perfect for me because, like you, I didn't want a phone with a screen larger than 4". For me I could care less about 4G, it is a battery drain, and 3G is fast enough for me. Also, it can now be rooted and has good unofficial community support. It is also nice to have a front facing camera since I use it to talk to far away relatives once in a while.
I had a promotional early upgrade and I ended up getting the Droid 3, but returned it 10 days later. Inc 2, to me is actually faster than the Droid 3, even though it is dual-core. I think the Droid 3's 512MB ram holds it back. The Inc2's screen is much better than the Droid 3's washed out screen. The Inc2's screen looks almost as good as the Inc's AMOLED, and it's actually visible in bright daylight. With the Inc2 I no longer have manually adjust my brightness settings to save battery, I just leave on auto and it works great. All those little things add up to make the Inc 2 a great phone.
I got my Inc2 used from ebay. There's nothing else out for verizon that's compelling enough for me to extend my contract at this point. I'll save my upgrade for an Ice cream Sandwich phone that can be rooted and has good battery life.