The goal of Facebook for login is to improve signup conversion rates for your sites and make it easier for users (so they don't need to re-enter all the same information and re-find their friends on every site they use). This thread is really interesting for me and the rest of the Platform team at Facebook because it illustrates how far we have to go. Please keep the feedback coming, however harsh :)
I get the brand perception and trust issues - it is something we care a lot about and are actively working on.
Beyond that issue, we have internally been talking a lot about ways of making the user experience smoother, more familiar, and less intimidating. If all of you running startups have practical suggestions about how the experience of a user using Facebook for login could be improved to help out your site, we would be really eager to hear it. It is a great time to get the feedback, as we are actively iterating on ideas internally.