A quick Google search seems to indicate a lot of problems with webcams and the Life Frame software - they just don't work!
Try Yawcam click here which I've found to be quite good - used with the built-in webcam in my Netbook (Win 7) and with a Logitech camera connected to my Laptop (Win XP). It should automatically detect any connected webcam.
Incidentally, the Fn key is only present on Laptop keyboards, where certain keys have a dual function.
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