I have just done a repair on an iphone 7 and the home button works fine, it is a very fragile part but as long as you are careful it can be removed easily. You need to push it through the front and feed the cable through and just put it back the same way in the new display assembly. The 7 is a bit more time consuming and difficult to repair than the 6 just go slow and be careful.
Make sure the battery is disconnected when doing any repair. If it is still connected it can cause a short in the logic and could potentially damage it. Also using ESD protection will help prevent any static damage. I would proceed with the repair but the spark could have shorted something in the screen or the phone.
I've noticed this a few times with touch id devices. Sometimes all it needs is a soft reset (hold down power and home buttons until you see apple and release) if that does not work than there was most likely damage to the home button cable.