Has anyone used a digital pot to lower the power of a 1.25w driver? I'm looking to be able to vary the power between 500mw - 1.2w. Any insight would be helpful.
That part wouldn't work anyway, for at least 3 reasons:
VCC for this part is 4.5-5.5V, and your supply voltage will not be in this window.
The value of 100k acts as an open circuit when used as a current shunt as you propose.
Wiper current is rated at 1mA max.