Update your camera and video drivers if you can. Also, sometimes other programs interfere with video overlays, like the one the camera uses. I used to get pink video on all my media players after I finished playing Source engine games on Steam, for instance. My guess was video drivers.

Thanks Aerundel for the reply.
I have tried all the available drivers that I downloaded from DELL's support page for XP. I also tried upgrading the driver using Windows Update. None helped at all.
This happened when I was running Vista on this machine and it continues to happen after I installed XP. Furthermore, my wife's m1330 has the exact same specs (ordered at the same time) and running exactly the same software. Yesterday, I put two computers on the table and turned on their cameras. After 5 mins, mine turned green and the other one was normal for 2+ hours.
Can this be hardware related?
Thanks for any help in advance!

Just got off the phone with XPS support. Using DELL Connect, he basically re-installed the same drivers that I install previously, run the webcam software, saw the problem (happened in 20 seconds) and initiated a dispatch to send a technician to replace the webcam. Let's see what happens...

Use the CD that came with the notebook for the camera. I installed the XP drivers like you did, and then used the CD to install the software. It's the same program, Vista or not.

Now the webcam is replaced and working fine (no more turning into Hulk). The XP drivers (same as Vista) only installs the Dell webcam console, which is the application that starts with the camera and allows for changing brightness, etc. Anybody know where I can get the additional software components? You know, the one that allows you to do time-lapse, video capture, etc.
Thanks in advance!

Thanks again Aerundel. I forgot that the computer came with a CD called "Webcam Center" :)