Looking at the smudges on the screen can help determine the password; however, if there are repeated numbers, you can't be sure how many repetitions there are (if any), and where the repetition is. It makes the task of unlocking a phone substantially harder.
http://mindyourdecisions.com/blog/2011/01/27/game-theory-and-probability-of-iphone-passwords/
Also, since you're not using a 4-digit passcode, there isn't even a way to know how many digits total there are.
For example, if you're passcode is 123456, you'd see all 6 of those digits smudged on the screen. But, if your code is 123345 you'd only see five smudged digits. You might see the overlap on the 3, but there's no way to know where the 3 is duplicated, if at all..