Okay, this isn't so much a question as as solution. I have seen the error reading something along the lines of "PhotoBooth cannot launch because another application is currently using the iSight camera" many times, and usually it's a bad or trapped cable or sometimes the camera itself.
On this one machine I was tasked with fixing recently it turned out this wasn't the case, much to my suprise. Booting to another OS showed it was indeed a software issue. Following a hunch from the Activity Monitor I found the issue fairly quickly, but those who don't know what they are looking for in these situations may find this useful.
In short, it was a rogue file (sorry, I didn't copy it or remember the name) in /System/Library/Image Capture/Devices. I have no idea how it got there as no drivers, photo, camera or video software had been installed at all - it was basically a clean system. Never the less, it was there. Killing the associated process removed the issue, so I removed the file, and logged out. Logging back in again the issue was resolved, and much quicker than swapping out hardware.
So, if this happens to you, then it would be worth checking Activity Monitor, or the above directory for rogue process'/files. Below is the correct (default, and nothing else should install to the System folder) state of the above named directory (at least on my MacBook Pro).
Anyway, I thought someone may find this useful some day.
