This is Working as Designed.
Your "Book:FAQ" page is saved in the "Wiki Books" area which has defined the "Prefixes Allowed in This Area" as only "[No Prefix]". Since the "Book" prefix is no longer allowed, the page MUST be renamed when editing. However, a page named exactly "FAQ" already exists; hence, "The current prefix and title combination matches another item." You will need to change the name of this page to something other than FAQ, or you must allow the Book prefix in this area.