Yup – it should use your Facebook avatar instead of your Shoot Up one – and great picture BTW!
I guessed that if people are happy to use an avatar on a public site like Facebook then they’re probably okay with using it on Shoot Up. I daresay it can be replaced if there’s a problem or you can just break the connection between FB and Shoot Up by denying permission to the Shoot Up app.
I’ll have a look at the squashing picture thing and the user name thing – off the top of my head I think you can change the latter through your profile settings…