This worked for me, hope it's useful to others. There are couple of steps involved:
Hosts
Add a subdomain of your URL to the hosts file
127.0.0.1 debug.mysite.com
Visual Studio 2010
I always use the VS Development Server, it allows me to simply debug by pressing F5. Use a Specific port and set the Start URL to the hosts file with port.
Facebook Developer Dashboard
In the Facebook Dashboard, choose your app and then click on Settings on the left menu. Add your domain to the App Domains (this allows you to use all subdomains), and the production URL in the Site Url.