IOS – iPhone autolock feature doesn’t work

This actually ended up being a hardware issue. I took my iPhone 5 into an apple store and they said they have seen this happen many times. When I pressed on the right side of the button vs. the left side it seemed to work always. Strange coincidence it just started happening after the software update.

Apple immediately replaced my iPhone 5, no fuss.

Now everything works fine.

There is a toggle you can flip to increase this effect even further.

Settings -> General -> Accessibility -> Increase Contrast

I'm a bit surprised the screen capture restores the original color, but I'm not surprised that on iOS devices with a powerful GPU that processing is happening on something as layered as the home screen / springboard view. That processing is one of the main design features of iOS 7 as I see it. Increasing text legibility on the home screen and the lock screen are clearly design considerations I would expect to see - even if they are subtle or slight as you describe for your current choice of custom image.