The Reuters news item is here, and coverage in La Republica here. I think it's well-deserved. Vargas Llosa is not all that popular in Peru. This is perhaps partly due to tall-poppy syndrome. Partly it relates to his conversion from leftist to neoliberal politics, his failed presidential run in 1990 and subsequent self-imposed exile in Spain. There's also a reasonable case that he has a quintissentially limeño viewpoint that treats the Andean world as the mysterious Other, misunderstanding and essentializing it. His involvement in an investigative commission into the murder of eight journalists in the Ayachucho locality of Uchuraccay in 1983 during the Shining Path uprising remains controversial, and the commission's conclusions contested.
Even my limeña development studies classmate in New Zealand frowns at the mention of Vargas Llosa and says "I prefer [fellow Peruvian novelist] Bryce Echenique" I'm a fan of Alfredo Bryce Echenique as well, but he only wrote a handful of books. In terms of the range of styles and technical virtuosity, Vargas Llosa has few parallels. I've read five of his novels, and they're all different, while all are also very readable. Conversation in the Cathedral is surely one of the great achievements of Latin American writing, remaining gripping in terms of plot and character while gradually piecing together a thoroughly splintered array of time sequences and viewpoints with amazing literary dexterity.
Other than that, the great strength of Mario Vargas Llosa is his depiction of power, its abuse, and the fear of it, especially from a male perspective. Perhaps influenced by a period of his youth spent in a military academy, themes of authority, obedience and oppression run through most of Vargas Llosa's work, including burlesque like Pantaleon y las Visitadoras. He has a genius for showing how the personal is political and the political personal. Regardless of his current views and pronouncements -- which I often don't really agree with -- this makes him a worthy recipient of an award for lifetime achievement.