I am going to post a follow up in this thread, special thanks to Trevor & staff at vbulletin.com for helping resolve this issue.
It appears that the reason this function would not work was because I had other facebook codes on my forum, such as the "share" button, and a "fan box". Once these were removed the facebook connect feature works flawlessly. Once these were removed from the advertising sections and widgets that is.
These codes I got probably sometime back in March before they changed the coding at facebook so I am sure it is a simple outdated code.
Hope by posting this here it will save someone else the trouble of having to get assistance.
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