== '''*** FINALLY A SOLUTION TO FIX THE TOUCH SENSOR ISSUE!! ***''' ==
Guys, I had the same frustration with five different iPhone 7's, while using expensive $50 oem screens, so it's not always the screen that causes the issue.
After reading through all these messages, here's a couple of interesting ones to try. Low and behold, the second solution has actually worked!! I have removed that single screw completely, restarted the phone, and the home button started working perfectly.
06/27/2017 by sam
Try replacing the top camera/speaker/proximity sensor flex cable with a new one, and everything should work fine again. That seems defective if causing phone to act up when connected. You can replace that with new one, and should fix everything.
05/31/2017 by screensaviors
I loosened the screw behind the center of the home button (holding it to the metal bracket), and it magically works now. This may not fix a lot of them, but it worked for me. I was just tightening that screw snug, but must have been too snug.
Which makes perfect sense, since a slight warping of the touch sensor could cause it to malfunction, creating all the dreaded touch issues.
Also, the top camera/speaker flex cable has to be connected, otherwise the home button will malfunction.
In concludion, use high quality screens only (don't be a cheapskate! lol), and don't over-tighten the single screw in the back of the touch sensor. Which makes perfect sense, since a slight warping of the touch sensor could cause it to malfunction, creating all the dreaded touch issues.