I find it awfully rude.
I as well. If you need to talk to or text someone, you should excuse yourself and contact the person you so desparately need to talk to. Otherwise, the person you're talking to will probably feel like what they say is not important and that's just insulting.
Most of the people on my friend's list have between 200 and 600 friends on Facebook. I'm not too far away from five hundred. It makes sense that there would be something new on Facebook within five minutes with that many friends.
That being said, however, maybe they're texting someone? Then it would make sense for them to look at their phone so often too. Should they be texting when they're already having a conversation? Probably not, but it could be important.
Also, I know a lot of people that can hold a conversation while doing something on their phone. Just because they aren't looking at you / only paying attention to you, that doesn't mean they aren't paying attention at all.
There's also the option where you're just boring / they're not interested in the conversation.
I think it's more a matter of politeness, and that it's quite rude to start using your phone (unless actually communicating something important) in the middle of a conversation
I never have conversations that last long enough for people to notice I'm on facebook
You'd be surprised at how often some people change their statuses.