it seems nobody has a clear answer as to how this process is done, everyone is debating on if passwords are stored in clear text (which sounds terrifying) or hashes...
They obviously don't store their passwords in plaintext. It would be terrible practice even if their incentive is just to save their user info in case of a breach.
They just hash common variations of the password (e.g. missing the last letter) to make it easier to login. Is that a good usability/security trade off? I think so but that's more debatable.
how much do you trust facebook?