Video killed the MSN star...

Flippin closed protocols. Discovered that there's a sneaky tickbox in the account settings on the Acer Aspire one messenger client.

The Webcam features are disabled when you enable the "Use a Windows Messenger compatible service" in the settings.
If you go into the Account settings for your MSN account and make sure that isn't ticked, then reconnect and try again.

(thanks to an acer forum for that one.)