Could they? My understanding was the OS didn't support dual core. Same goes for higher resolutions (no support). I could be wrong about the prior, but certainly not the latter.
Not saying what they did was ok, by any means (I am happy I returned my Lumia based solely on screen resolution gripes at the time), but I am also not sure dual core was an option at the time.
Microsoft boxed themselves in and got screwed for it. They limited resolutions to set standard to avoid things getting fragmented. They limited hardware for the same reason. That screwed then because look at phone resolutions now. The MS standard is well low now compared to everyone else and they screwed up.
Assuming Apple changes their size of screen it would be for the same reason that Apple saw they were getting boxed into a corner and eat the pain to change sizes.
This better be MS last time to just drop support because it sucks. At least with windows 6.5 we all knew very far in advance that those devices were not going to be supported. The same could not be said about WP7 devices.