This a Bizzare workaround that worked for me !!!
I am actually using Creative Webcam, but I have similar problem.
Try this...
Install Trillian messenger Pro (there is Basic and Pro version, but both are free)
Log in to Yahoo account in Trillian messenger Pro
Invite someone for video chat, press stop button on video bar.
trillian hangs,
leave trillian hanging..(don't try to kill it)
Start yahoo messenger and start webcam, it should work..
.
.