Indeed, this error is returned when the configuration of the app in the Facebook developers portal is not for a LIVE app - e.g. you can use only your Developer account to authenticate in the app via Facebook.
I am afraid that the device connection to AppBuilder does not affect this workflow - one case I can think of, though, is that you might have another app (for example a testing app) that you have used previously for Facebook integration synced to the device because it is opened in AppBuilder.
The suggestions in the SOF (set the app to Live or add testing accounts) thread are what you need exactly to do.
Can you double check the above and let me know the results.