The ingenious title above is brought to you by this post on See Also, which is, well, depressing.
Not surprising, though. In a nutshell, what appears to be happening is the Facebook is rejecting applications that allow outside-Facebook (i.e. Web) searches from the Profile page (i.e. the UIUC widget). It sounds like there is not as much of a problem with applications that reside entirely within the sidebar, and only expand when the user chooses to work with it.
It also sounds like you can still make your app available to users, it just won't be indexed in Facebook Apps. But do we want to create a University-wide tool that could be perceived as violating the Facebook TOS? I'd guess not.
For more info on who's been rejected and why, read this post in FacebookAppsforLibraries
Updated to add: The Chronicle also published a short piece on this. Isn't it interesting that libraries are the sole trailblazers in developing academic apps for FB? :)
(and apropos of absolutely nothing, the inspiration for that title was one of my all time favorite NY Daily News headlines: FORD TO CITY: DROP DEAD. I don't think the NYC tabs have topped that one yet, and it ran back in the 70s.)
One of the comments in the Chronicle was a little harsh "No University needs to start investing time and funding into applications to allow library searches." Though is it important to realize these people still exist.