[...all the pros seem to say you should try and bounce the flash. I've tried doing that and no matter how I do it, the faces always look very very ghostly. Their skin is very pale. Do I need to diffuse the flash?
Over exposed faces are because the face is closer to the source of light then is the background. Light fall off with distance so the face is in stronger light. Your camera is "stupid" in that it can't know what part of the picture you think is important so it just computes the exposure from an average of the entire frame. The averaging method works well if all of the frame is in the same light as iff you were outdoors under the sun but not if the light is diferent on differnt objects. That said some camera have smarter light meters and can figure out what it is you think is importent by looking at the lens's focus distance setting and which AF sensor is selected. But still cameras are not so smart.
What you can do is set the exposure compesation down an f-stop or two. But you have to learn how much and the efect is stronger with closer subjects with empty space behind and the effect is weak for "mug shots" where the subject is lined up with his back on a white wall.
Bounce the light off the ceiling or the wall behind you. This does several things (1) doubles the subject to light distance to reduce the above effect and (2) make the light source "bigger" so as to reduce the harshness of any shadows (3) moves the light source farther away from your lens and so move the shadows.
If the wall or ceiling is far away or if the ceiling is black like in a convention center or stage you can bring our own reflector. These are just big white platic thinks that you can make or buy that attach to the strobe.
Also, the over expose faces are not all that hard to correct in Photoshop As long as not part is saturated there is some hope. But still it is far better to expose corectly (using compenation if need be) and to use a soft, low contrast light that has bounced off a large reflector (wall, ceiling cardboard or whatever) Wit digital the "low contrast" part really matters because of digital's limited dynamic range compared to film
