I have an iPhone app (EventLoud) that taps into users Facebook social graph to pull social suggestions as well as login via Facebook connect. Today for the first time, I heard from a potential user who refused to “allow” the Facebook connection. I’m wondering if this is a common case?
All the time!
If it isn’t blindingly clear that your app, service, or site is dependent on accessing/downloading data from/uploading data to Facebook, then many people (especially older, wiser people) are going to take issue with a blanket approval.
It’s still a pretty small minority of savvy users in most cases, but they do exist, and if there’s a workaround that can accommodate them, they can turn out to be highly effective evangelists, especially in a crowded market with many alternatives.
In many cases, the solution is as simple as clarifying exactly how you intend to use the data on the user’s behalf. While this explanation can also potentially cause other distinct groups of users to “think twice” and ultimately refuse to sign up, it’s still a good practice to have, at least, a “learn more…” link on the home page that goes into greater detail.
Also, consider the minimum vs. desired amount of data you’d like to link via Facebook – is there a way you can get users to “sign up” while sharing only their FB auth key, and then expand the data shared at a later date (limited vs. full feature set). Of course, getting this complicated may be a comparative waste of engineering hours while you’re building traction – you may simply need to decide that users who care deeply about their privacy and sharing habits are not your target market, and commit to pursuing them at a later date, when you have more resources to tackle the challenge.
deano.com 
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