Liz Gannes and Ina Fried of All Things D say that the long-rumored Facebook phone is real and based on a custom version of Android, although it might not show up for awhile:
Code-named “Buffy,” after the television vampire slayer, the phone is planned to run on a modified version of Android that Facebook has tweaked heavily to deeply integrate its services, as well as to support HTML5 as a platform for applications, according to sources familiar with the project.
Facebook is in an interesting position when it comes to phones. Apple has deeply integrated Twitter into iOS 5. Google, which clearly sees Facebook as its primary archrival, is unlikely to make Facebook support core to the off-the-shelf version of Android. So I can see why Facebook might want a phone of its very own…