It's not a firmware issue. IMHO It's a problem with the fw update utility.
Here's what I suspect is happening -- the camera updates itself and when it restarts it's internal firmware, windows device manager grabs it under a different driver -- so the firmware updater utility thinks something went wrong because it can't find
it. Lifecam software can't find it, it thinks there's no cameras in the system.
Do the following please:
1.) Uninstall the lifecam software, unplug your webcam, and reboot.
2.) Plug the cam back in to a different usb port than it was plugged into originally.
Next, tell me the following:
1.) What shows up in device manager (I'm guessing it will be listed as "Webcam" and using a MS generic driver that's dated 2006 -- but if this is NOT the case let me know)?
A screen shot would be appreciated (example:http://i53.tinypic.com/16hklr5.png)
2.) What camera you have (exact model)?
3.) What version of windows are you using, and is it 32-bit or 64-bit?
If you need help getting to device manager and finding the camera and looking at the driver info \ properties let me know.
Also FYI I'm not a "Microsoft" person (lol), just a regular end user ;p