We came across a nifty little tutorial that can turn an Android smartphone into a wireless webcam. The tutorial, on Instructables, uses an Android and PC app called DroidCam. We just tested it out and while it crashed a few times, it worked quite well with Skype, making it a viable video chat option for those who don't want to buy a separate camera. Here's a breakdown on how to set it up.
First thing users do is download and install the DroidCam app from the Android Market. There's a free version and a "pro" version which offers unlimited access for $4.99. While that's going on, download the DroidCam app for your PC or Linux box (sorry Apple users) from here. Open the app on your phone and on your PC and select WiFi/Lan from the DroiCam Client options window on your PC. Note the IP address on the DroidCam app and input to the Phone IP window of the PC app. Restart your PC.
Once you restart your PC, you can open the DroidCam utility again. Then open Skype and it should automatically pick up the Android camera. You may also need to click on "Connect" button in DroidCam. It's now ready to use!