So what is going on when the camera LED is ON (green) . . . but the system, skype and other programs say " No camera is installed" . . and no video is shown when using skype for example while at the same time GREEN LED remains ON all the time.
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Go to Applications->Utilities->System INformation.app Under the USB header,check to see if the FaceTime HD Camera is detected. If it is not then you have a hardware problem with the camera.
If it is detected you might have another user account "tying up" the camera, or a corrupted application that has damaged your isight camera extension.. Enable only one user account at a time, oR, create a new user account and see if the problem persists.
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vanda - You will need to give us your system info and more details as it sounds like you have a problem with your systems camera circuit
by Dan