Gamespot has a great preview of the Xbox Live Camera
It's a video, so no reading required
I can't embed it on the site so you'll have to click over to Gamespot via the link below, but it's worth checking out.
I'm planning on buyone one of the cameras just for the hell of it, I don't know what I'll use it for since I'm not much of a social gamer, I just think it's really cool.
Here's the link to the video (running time ~5.5 minutes)