The "camera failed" can also be down to the actual camera being faulty, if it can't establish a connection it will sometimes just come up with that message.
I think you can test the camera without that application by going to the dialer and calling "* # 0 * # " although I think that might just do the display. There's another one but I can't remember it I think it's either *#7353# or *#4353#. That one should have a camera test as well.
If it doesn't work through those then it's likely to be just fucked.