The overall diameter of his stock 16's with higher profile tires is virtually the same as the overall diameter of the 17's he now has with lower profile tires. Don't worry about it.
BTW, wouldn't the digital speedo be off just as much as the analog? Don't they both measure by how fast the axles rotate?
Acceptable range for tires on sn95+ Mustangs is from 25.4" to 26.1".
Within that range, any speedo should be fine.
Analog speedo's have two ways of being corrected. One is with a speedo gear reserved mostly for geat swaps, but as you move past 3.73 toward 4.10's, the highest speedo gear won't match the speed correctly. Second way is to pull the gauge pod apart, and match speed with a friend and put the needle back on the speedo post at the correct MPH. Your odometer will always be off though.
Digital can be changed by either a speedo chip purchased from Dallas Mustang, or when you go to reprogram your car's chip.