I had the same problem with my Creative Webcam. It worked with various other applications, but not MSN. It showed a picture during the Audio/Video Tuning Wizard, but when I go to Tools & Web Camera Settings, the picture is just black & it’s the same if I try to use it in MSN.
I uninstalled all of the applications that came with the camera – PC Cam Center, Webcam Monitor & also the driver, rebooted the PC & then re-installed the previously removed apps. again.
Now the camera works fine in MSN.