I was having EXACTLY the same Problem but somehow manged to fix it just after i read this Article. this is what i did.
-Plug my webcam into a USB socket at the BACK of my computer
-My Computer wanted to install Driver software for a "Trust" Webcam, so i Let it.
-I Went to Audio and Video Setup on Windows Live Messenger, then went through the Wizard, and welected "Trust Webcam" on the drop down list on the Webcam page.
-Then pressed Finish and restarted the Video Call and it Worked.
Hope it Might Help
Kie
Kie
February 2008