Same problem here, camera does not work on MSN, I have the latest MSN Live, mic works fine, Camera does not.
Camera image even appears on MSN video options and test settings but when making a call it simply does not starts, only the blue light (I think its the mic light) goes on and camera does not work on MSN video calls (red light doesnt even light up for video calls) when I got to video options of MSN there it is, mic and camera working fine… when I start a call the other side can only listen to me and sees grey screen.
Already reinstalled lattest drivers, still the same, unplugeg, repluged, rebooted, chaged USB ports (USB 2 and 1) nothing worked.
Almost forgot, I am using Win7 x64!