The Patent holder should have been required to submit their source code to get the patent to start with, [ ... ]
The patent office used to require submission of a model for any patent, but stopped, largely because storing all the models became cumbersome and expensive. In theory, it wouldn't need to be so cumbersome for source code, but see more about that below.
[...] Facebook should only have to submit its source to an independant third party for review.
That's almost certainly the case -- it'll really be turned over to the opposing counsel (i.e. attorneys) and they'll hire (non-Facebook) experts to examine the code. Those experts, in turn, will be required to sign a protective order, promising they'll only use it for the specific purpose of proving claims in the current case, not anything else.
I've been in that position a number of times, and can honestly say I've never even been slightly tempted to steal from the source code I looked at. Quite the contrary, such work is usually done on a tight enough schedule that you're working too hard to meet deadlines to really think about much else, and by the time a case is over, you never want to look at any of it again!
I realize this isn't how software patents work, but they need to start requiring source code submissions for the applications.
Perhaps it's best to consider how patents on software came to be accepted to start with. There was a patent on a machine for curing rubber. Somebody else built a machine that clearly did what that patent described -- but under control of software running on a CPU, instead of electronics designed specifically for that purpose. The case got to the supreme court, which ruled that the simple fact that the machine included a CPU and some software to control it didn't change the fact that it was a machine that executed the patent.
From a legal viewpoint, there's still not really a patent on software per se -- there's a patent on a machine that executes some software, or on a process of doing something that happens to be carried out by a computer under the control of some software.
As such, if you try to apply such a rule to "software patents", you almost inevitably have to apply it to patents on other kinds of machines. The minute you do that, however, you're back to the cumbersome, expensive storage of all those machines.
Facebook might be using something within their source that could be patentable that is not related to any existing patents, and they don't want to disclose their methods and routines to any outside party. This is not at all uncommon, we call these things "trade secrets". How do we know that this isn't just a ruse to get access to trade secrets or other unrelated code?
See above or just Google for "protective order". This is hardly the first court case involving information that might be sensitive...