In-cell touch panels would eliminate the need for an external module or film, which would reduce the weight of the iPhone 5 as well as slimming down the overall thickness of the panel array. In-cell touch panels can be made thinner than traditional on-cell panels, because the touch sensors are actually placed inside the color filters rather than atop them.
It makes sense for Apple to go cutting edge, in this case. In addition to battery life, Apple is all about keeping the external dimensions of the iPhone (and iPad) as compact as possible. It's also possible that Apple could leave the thickness as is, but use the additional space for extra battery capacity.
DigiTimes, however, has a mixed record in its reporting of rumors. Still, it wouldn't surprise us to see Apple make this move, as long as the yield rates are high enough, and the costs are low enough.