It certainly doesn't mind subdomains (our demo site is a subdomain at <!-- m --><a class="postlink" href="
facebook.sourcecoast.com">
facebook.sourcecoast.com).
However, those Facebook people are tricky. I know they don't allow Facebook application names with "facebook" or even "fb" in the name anywhere. It's possible they don't like "dev" as the subdomain name. I'm drawing at straws here, because I really don't know why it's not showing up.
Just to get more specific, can you provide the exact version of PHP? There are some known issues with 5.1 (and 5.0x I'd presume) that will be patched in an upcoming release. 5.2+ isn't affected. Also, can you try removing some characters from either the API or secret key and saving to see if you get an error? Again, it will help us establish if communication with FBC is there.