If you really love fancybox, you'll have to remove this extension. But, if you'd rather have hashtag links, remove fancybox.
Or, you could go with a different symbol. The only issue is, because of Twitter, so many people are very used to tags being #thetag. So, if you use a different beginning identifying character, your forum members would have to get used to using it instead of "#."
For example, you could go with "+." Your tags would then look like: +thetag. This way, there will be less conflicts because a lot of HTML and CSS uses #... but not + or another special character.
If you want to mess around with this, go to line 29 in this extension's extend.php file. You will see this:
entries[i].innerHTML = entries[i].innerHTML.replace(/#(\S+)/g,'<a href="/?q=$1" title="Find more posts tagged with #$1">#$1</a>');
innerHTML.replace you will see
(/#; change that # to another character.
Another problem with this though is if I ever release a new version of this extension and you update... you will lose this change. But, it's quick to edit and change back.