Check your firewall settings. It might be that your webcam (and other people's) are being blocked when crossing the Internet in MSN Messenger. To check this, go to Control Panel, and then to Windows Firewall.
The easiest way to check this is by deleting the entries under Exceptions for MSN Messenger. When you next reload MSN, you will be prompted if you would like to unblock the program. If you click Unblock, then the next time you use the webcam, you'll have a better chance it will work.
If you use a different firewall software, or a router, then you may need to look at the manuals to find out how to open the appropriate ports for MSN Messenger.