Comment by DanOWar

I've had this issue with an iPhone 2 and 4, and was able to permanently fix it in both cases by applying acetone to a cotton swab (Q-Tip) and cleaning the home button with it (allowing a small amount of acetone to enter into the seam). In both instances, the home button worked like new afterwards, for years. Your results may vary, but to maximize your chances, I'd suggest using a high grade acetone (e.g. from a home improvement store) as opposed to nail polish.