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I think that the poster meant that when Parallels Tools is installed, the virtual XP recognizes the iSight camera, but cannot do anything with it (i.e. no drivers). Like it was with me. However if he can find drivers for it, I hope he returns to tell us how he got Parallels to use the camera.

Parallels Tools is optionally installed into the guest operating system. To do this, whilst Parallels is running your selected OS (Windows preferably, I havent tried this with any other OS) return mouse control to OSX, and select "Install Parallels Tools ..." from the "VM" menu. This will...