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The flashing eye has to do with the camera's red-eye reduction feature. Check to see that the little window below the flash on the front of the camera is clean, and make sure the lens is spotless. If that doesn't work, try de-activating the red-eye reduction using the camera menu.
I had the same problem, called Samsung and they sent me a shipping label via email. I sent to their repair 12/15/08 and got the fixed camera today, 12/18/08. Very quick service - they replaced the lens. Camera now flashes.
The flashing eye indicates that the red eye minimizer feature is enabled. My NV 10 has buttons on the back that line up with features on the screen. Try to find the one that looks like an eye. That option is often times tied to the flash feature. The flash may be able to be turned on with the same button.