<p>I remember hearing Joel say he has 2 different locations where the servers are located, each location has 2 front end servers and 1 back end server.</p>

<ol>
<li><p>If a one of the hosting facilities goes down, how can he switch over to the other one?  (Or is it just going to be a DNS change that will take 24-72 hours to propagate?).</p></li>
<li><p>How can a single SQL Server instance have so many databases on it?  FB has a completely separate database per account.  I can't see a single SQL Server instance having more than say 200-250 databases on it!  And I'm sure they have more customers than that.</p></li>
</ol>

They talked about this in one of the Stack Overflow podcasts, but I can't find it in the transcripts.
1) Each of the two centers handles approximately 1/2 of the users. Fairly often (hourly, I think Joel said) they ship transaction logs to the other site. If site A goes down, they bring up the db backups on site B, and do the DNS switchover. It won't be instantaneous or automated, nor do they want it to be, because they'll be coming up with slightly stale data, and want to avoid that if it's at all possible to bring the broken site back up.
I'm not sure how they handle the DNS situation, but you can set the TTL on DNS records to mere seconds to limit caching, and have failover occur very quickly.
2) Why not? I'm not sure of the hard limit of databases per instance, but there's also nothing keeping you from running multiple instances of SQL Server on your box. I would imagine you're more limited by hardware than software. (You can also run Fogbugz with a MySQL database backend).