1. if you do get fired, i wonder if you could take it to an industrial tribunal? i'm no expert, but i don't think employees have any right to your personal information - in this case, your Facebook profile. you should therefore be within your rights to refuse. [edit: clearly I'm not the only one to think this. Try and get your boss to make the demand in writing (eg email) so that you have evidence]
2. you can add him as a friend on FB, but then go to Account > Privacy Settings > Personal Information and Posts... go through each thing (eg. "Bio and favorite quotations", or (especially) "Posts by me" and "Posts by friends") and select Custom edit from the selection. You can then put your boss into the "Hide this from" list. Once you're finished, Click on "Preview my Profile" from the top right and type in your boss' name. That will show you how much of your profile he can see. The result? You let him on your profile, but are restricting your personal information and wall posts.
I did this with my coworkers.