From the Daily Dot article, it looks like what you described is what happens (TouchID is disabled) and the phone will function mostly fine, but the author also encountered other bugs possibly related to the issue. However, the bigger problem was whenever he tried to restore or update the device, Error 53 occurred and it failed. Restore from backup still worked though. So essentially, his iPhone was locked to that iOS version and could not be modified.

http://www.dailydot.com/technology/what-is-error-53-iphone/

I don't think that would solve the underlying problem of the TouchID sensor being compromised. The device would potentially be venerable to software based attacks that re-anbled the compromised TouchID sensor.

Why? Then the user is left guessing why their phone is acting like it has no TouchID when it does.

Would you rather guess why Touch ID isn't working or have a completely unusable phone?

If you get your phone repaired and TouchID no longer works when you get it back then it's not going to take a genius to put two and two together and figure out that it might be related to the repair.

It's a well known issue and every independent repairmen will warn you before replacing this part or else they would quickly get sued out of existence.

We don't know the technical details behind. For all it's worth, the button might be like one of those thunderbolt ports that has direct memory access and can alter the firmware during a software upgrade.