The new plastic iPhones do look ugly and do look like a massive step backwards, design-wise. But I do wonder if their cheap look is by design. Wild thought here, but maybe Apple wants to make a stark distinction between their high-end iPhones and the budget ones.
Why else wouldn't they go with aluminium when even the iPod Touch, the current lowest end of the iOS product family, has it? I think the current iPod Touch line is pretty nice looking and co-opting that design would have made for a nice looking phone. But that would probably be viewed as an alternative to the 5/5S rather than the cheap phone.
Apple probably also wants to get rid of the iPhone 4S in addition to the iPhone 4. I'm sure they'd like to get rid of any remaining iOS products without the Lightning port and put an end to the old iPhone screen aspect ratio as well.