I have the same problem. Myself using ME, and my friend on XP. We are both on dial-up. When he had no webcam connected he could see and hear me. Now with his webcam we can see each other, or via Net Meeting he can hear me, but not all at the same time. Perhaps dial up just can't cope. We are going to retry using his old Windows 98 system just to check compatability issues.
Get the same messages and errors as yourself currently. Will let you know if any solutions are forthcoming.