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I really don't think they need new hardware that badly... cheaper memory cards, yes; more software, yes.... new hardware.. ehh.. sure, some improvements can always be made but the hardware isn't the main reason behind the low sales. It's just not advertised that well (I've barely even heard about it outside of this forum) and it needs more Vita exclusive software.. people would buy the worst console in the world if it had the games they wanted.
I was and still am baffled that Sony went with 3G for the Vita. Even at that time 3G was being phased out for the much faster 4G. Plus AT&T kinda sucks but oh well. I still laugh when they announced they were using AT&T at their E3 conference and the entire crowd groaned loudly.
I honestly would not want it to be smaller, though. I like big handhelds. 3DS XL >>>> 3DS, IMO. But hell, I'd probably do this upgrade for the 4G and folder update alone. lol