Project References are used to include a library project (e.g., the Facebook SDK).
The documentation -- and books by balding guys -- show you how to attach an Android library project to your app, and it has nothing to do with "Project References".
Similarly, the documentation for the Facebook SDK shows you how to attach their Android library project to your app (see Step 6). They follow the standard Android library project approach, and that too does not involve "Project References".
Now, it is conceivable that there's something about a newer Eclipse version (I'm running Indigo) that causes "Project References" to show Android library projects as checked -- it does not do so in my version.
Make sure that you have properly set up the Android library projects, and see if that helps with your issue.