Yes, you're right. Their naming convention clearly indicates the generation of the phone. iPhone 4 = 4th generation phone. Then obviously you would call your 5th generation phone the iPhone 4S, that much is very clear. iPhone 5 would then be the 6th generation phone. That makes perfect sense as well. What were the specs on the iPhone 2 and iPhone 3 again? Oh wait, they didn't exist.
But what's this iPhone 3G all about? Oh yeah, that indicated that it was a 3G handset. iPhone 3GS? Yup, 3G handset there too. But iPhone 4 and 4S aren't 4G? That's obvious too, right?
BTW, anyone know what 3G and 4G actually means? Third Generation and Fourth Generation. Of course that's referring to the data transmission capabilities, and not the phone, right? So the iPhone 3G was actually a second AND third generation device. And the iPhone 4 was a 4th and 3rd generation device, while the 4s was the 5th and 3rd generation device.
You're right. This Apple naming convention makes absolutely perfect sense and is in no way misleading to the consumer whatsoever.