No, the CPU reads encrypted data from the sensor and sends them to the SE for decryption and analysis. See the PDF linked here by somebody. What a malicious sensor could do is store user's fingerprint for retrieval by unauthorized parties.
> If the validation fails, the device will function mostly fine, although with Touch ID disabled.
On iOS 8. Once the device is updated to v9, it turns into brick. Quoting from OP:
"They repaired the screen and home button, and it worked perfectly." He says he thought no more about it, until he was sent the standard notification by Apple inviting him to install the latest software. He accepted the upgrade, but within seconds the phone was displaying “error 53” and was, in effect, dead. When Olmos (...) took it to an Apple store in London, staff told him there was nothing they could do, and that his phone was now junk. He had to pay £270 for a replacement and is furious.
> If a customer encounters Error 53, we encourage them to contact Apple Support.
This may be a media-friendly euphemism for "it's dead", unless this London staff was clueless.