PS: This program is by the same author. It's shareware but the download is fully functional without registration. (The advantage of this program is that it offers continual monitoring, rather than the 'run on demand' functionality of KL-Detector): http://dewasoft.com/privacy/i-hate-keyloggers. htm
It's more likely to be yet more proof (in any were needed) that Windows is cr@p. I don't use MSN Live and I've no knowledge of how it works but, as far as I can see, the only way that the software can check whether you've got a cam connected is to look at what Windows is currently reporting. It comes as no surprise to me if Windows provides false information.
It is very difficult to detect a key logger on PC, because standard key logger device installation on PC, can't able to detect by any tool. To know about standard VGA/DVI key logger, please visit this page at http://www.spy3k.fr/hardware-capture-decran.html/.