It is pretty clear now that there will be a fingerprint sensor embedded into the home button on the 5S.
View attachment 431900
Looking at the most recent leaked home button parts you can see the optical sensor portion in the center of the metal circle. Then, directly down the ribbon cable, the large square is the fingerprint processor module. This is critical to the security of the phone because it does not use the iphone's main cpu to do the processing, where it may be more sensitive to security circumventing measures.
This ring around the home button that has been shown recently may be for infrared illumination purposes, to get a good image of the users fingerprint.
View attachment 431901
Also, you can see in this patent diagram how a fingerprint scanner in the home button would work perfectly. When you position the tip of your index finger over the slide to unlock bar on the unlock screen, and then slide to the center of the screen, your finger print will be positioned directly over the center of the home button containing the sensor. I would imagine when the user has the fingerprint to unlock setting activated, they would simply slide to the center of the screen, wait a moment for it to scan and verify the print and then it would unlock. Yes, this would not work for thumb swipe unlockers.