Before you can use your webcam in any chat program you have to configure it to that program

Test your webcam here to make sure it broadcasts ok - Hit 'Allow' in the top window and check your cam in the left hand panel.

http://www.testmycam.com/

working OK ?

CONFIGURE TO SKYPE

Its good practice to disconnect and re-connect your webcam before you start (To reboot the webcam software) - if you have been using it elsewhere the MSN software may have difficulty in locating it, even if you exited the previous program correctly.
The reason being, the webcam software can remain hooked-up to a program and needs to be rebooted.
Mine, I just unplug it from the USB and plug it back in to reboot the software.
If yours is integral with the computer you will have to re-start the computer, use a keyboard shortcut or disable / enable the webcam from the Device Manager.

Start Skype.
On the Tools menu, click 'Options'.
In the navigation pane of the Skype 'Options' window, click 'Audio Settings'
Set your speakers as default.
Select your webcam as the default microphone.
Click 'Save'
In the navigation pane of the Skype Options window, click Video Settings.
Select your webcam as the default.
Click Save
Test your webcam by making a Skype test call.
For more information about how to configure Skype Messenger, please visit the following Skype Web site:
http://support.skype.com (http://support.skype.com)