Is there any way to disable the iPhone 5's passcode functionality while connected to Xcode?
No, there's no way to disable the passcode lock solely when you're connected to your system and using Xcode.


  I know i can disable it during development etc... but it defeats the
  purpose of phone security when you need to rush out quickly for work
  etc.....


As much as it defeats the purpose of security to disable the passcode, having functionality to selectively disable it when using Xcode would be an even bigger security issue.