We study the limitations for entanglement due to collisional decoherence in a Bose-Einstein condensate. Specifically we consider relative number squeezing between photons and atoms coupled out from a homogeneous condensate. We study the decay of excited quasiparticle modes due to collisions in condensates of atoms with one or two internal degrees of freedom. The time evolution of these modes is determined in the linear response approximation to the deviation from equilibrium. We use Heisenberg-Langevin equations to derive equations of motion for the densities and higher correlation functions which determine the squeezing. In this way we can show that decoherence due to quasiparticle interactions imposes an important limit on the degree of number squeezing which may be achieved. Our results are also relevant for the determination of decoherence times in other experiments based on entanglement, e.g. the slowing and stopping of light in condensed atomic gases using dark states.