DOT 5 is silicone brake fluid and is very specific in it's use. A lot of racers use it but you cannot mix it with DOT3 or 4, plus silicone does not have the ability to absorb moisture like DOT3/4 and will rust the inside of your brake system.
There is a new spec out called 5.1 that is not silicone and comes in the new KTM's. Use Motul 600 brake fluid and you won't go wrong.
An accurate answer is, Silicone is inert and will not ruin seals. As a matter of fact, it will prolong the seals life, as it is a better lubricant than dot 3 or 4.
In the aircraft industry, we install "O" rings of all types with Dow Corning DC4. It is a silicone lubricant that is totally inert.This would be a good assembly lube if rebuilding the brakes and using silicone fluid.
Yes, silicone fluid will not absorb water, so regular bleeding is a good idea to prevent any water from pooling at the bottom of the caliper. Regular bleeding is necessary for exactly the same reason with conventional fluid, corrrosion! However, corrosion occurs whether or not the fluid absorbs the moisture. Your brake components will last longest if properly rebuilt first and silicone fluid is used. Regular fluid cannot prevent wear as well as silicone and does nothing to prevent corrosion.
I use silicone fluid in everything I own with fantastic results.
I have talked to MANY mechanics and they say DO NOY use dot 5, I think in my manual it even says not to use it!!!! The guys at the shop said that it does screw up systems in dirtbikes , and it makes a huge mess and it does ruin systems by plugging them up? I think sorry I wish I had more facts but I heard from so many people that I would never risk it!