Hey, this was something I was wondering about as well. There's snow outside here so I have to run on a treadmill and obviously the GPS doesn't work on that. The Shoe Sensor DOES work with the iPhone 5, but NOT with the "Running" app. You must use the "Nike + iPod" app, which is already on your iPhone, but might be disabled. Go to Settings on your phone and scroll down to the bottom. There should be a list of apps and "Nike + iPod" should be one of them. Turn it On, use that that, and you should be good to go. You do not need the part that would plug into the iPhone if you do this. You only need the Shoe Sensor.
You could use the "Running" app to run on a treadmill but not with the Shoe Sensor. If you choose your location as an "Indoors" run, the phone will work as a motion sensor to track your running. So basically, you have to hold your phone, keep it in your pocket, or wear an armband with it on, which is pretty inaccurate and super annoying.