I have to agree with the Byrdie person: Everything is a copyright violation. That's o.k, because everything is illegal anyhow; it's just a question of whether some person of some authority wants to press the issue or not.
EXAMPLE:
There is a law on 'the books' in my state (PA) that clearly states that: "All automobile operators MUST pull to the side of the road and launch a warning rocket into the sky upon sighting a cow (or other livestock) within line of sight of the roadway."
I can't ever remember hearing of anybody ticketed for this violation.
Strange as it might seem, it is also illegal, AFAIK, to actually fire military grade weaponry 'into the sky' at random from the roadside in PA.
Damned if you do, damned if you don't.
See a cow while driving -> go to jail ; if all of the technicalities are observed.
Seems silly doesn't it?

I'm not condoning image pirating or anything; but still...
"Let them bring legal action..." is fairly common legal advice.
So, if Arnold decided it would be worth his while to file a lawsuit against somebody for using his face in Face Shop, then he could probably force the issue. I think he has more important things to occupy his time; unless it would become some major PR issue.
Until then, I feel that it is implied (by his lack of action) that he condones the use of the image. Let him say otherwise. Nobody else has anything to do with the decision. A judge in a courtroom may or may not agree with that assessment. Until the issue actually goes before a judge, it is moot.

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That all aside; and assuming that every celebrity would simultaneously decide to forbid use of their images with the application, there is still a use for Face Shop: USE YOUR OWN PHOTOGRAPHS. Ones that you do actually own the rights to (because just snapping a photograph doesn't automatically confer image ownership rights either).

Friends don't let friends use booleans.