Whether it's OK for a company to co-opt an English word for its name depends on how much confusion and inelegance it causes. I didn't have a problem with their original name.

That said, "facebook" was not in my vocabulary as a native American English speaker, and I'd wager that was true for over 99% of Americans. My impression is that it's something that only existed at Ivy League schools. Perhaps regular colleges also had them? Maybe someone could fill me in on that.