As good as the iPhone 5 camera is, it has some physical issues that prevent me from switching over to full-time it from a point-and-shoot "real" camera:
It doesn't have an optical zoom. This limits what I can do with it, even in casual situations. IMO, there are only two setups where the iPhone camera is ideal: Close up/Macro and "scenic overview". Anything in between, I'm looking for that zoom lens, and it's just not there. Digital zoom, quite frankly, sucks. Because it's not merely cropping, it's also resizing back up to the camera's full resolution and does a poor quality resize.
The sensor is too small for the number of pixels it has. With what the cameras on cellphones are used for by the target user, 8MP is way more than needed. You don't need that much for Instagram, Facebook or social use of Flikr. And normally, those apps or the service will downsize the image anyway. The only reason to put an 8MP camera on the phone like that is to score points in a spec argument. Apple would have been better off staying with a 5MP camera, using the same physical size sensor, with the modern updated fabrication methods/tools to get BETTER pixels rather than more pixels.
The only reason I used my iPhone as a camera yesterday at my nephew's birthday party is because my SLR is broken and I couldn't find my point-and-shoot.