Lifecam.exe has encountered a problem and...

Check out the Microsoft support website for lifecam errors
http://support.microsoft.com/search/default.aspx?mode=r&qid=348012&query=lifecam+problems&spid=global&catalog=LCID%3D2057&2057comm=1&res=20

Check if Microsoft has posted a solution on your computer ( if you have the necessary OS)
Start > Control Panel > Classic View > Problem reports and solutions

Also go into your Device Manager - expand the 'Imaging' file and see if you have a driver problem shown as a yellow triangle with an (!) inside
If so, right click on the text of your webcam and 'update driver software'
Use the internet option when prompted.

If all else fails - close all programs - disconnect webcam - uninstall webcam software - restart computer and download latest software from Microsoft Support download centre - which should incorporate all the patches.