Go to the Apple menu in the upper-right corner of your screen and choose ABOUT THIS MAC. In the window that appears, click on MORE INFO...
In the System Profiler window that appears, look in the left column for USB. Click on that.
Look in the top-right part of the window now. It should list a bunch of "USB Bus" items. Do you see one that says something like, "Built-in iSight"? If not, you have a hardware problem. (You might also have a hardware problem if you DO see such an entry, but you DEFINITELY have a hardware problem if you don't.)
Have you seen this ?
http://support.apple.com/kb/HT2090 (Trouble Shooting an iSight)
After checking other apps and the System Profiler (in other Mac User Accounts as well)
It suggests this:-
As stated in the other reply the Internal iSight is USB device connected internally.
This does mean that other external devices that are Unpowered can effect the power drain and the iSight camera may not be able to draw enough power.
In older laptops the problem can be "hardware" in that opening and closing the lid can fray the cable connecting the USB Bus to the camera. (fixed by re-routing the cable in later models).
(In some others the cable seems to pull loose from the camera end)
Your specs say you have an iMac though so this should not be the problem.
Please, if posting Logs, do not post any Log info after the line "Binary Images for iChat"
G4/1GhzDual MDD (Leopard 10.5.8)
MacBookPro 2Gb( 10.6.8)
Mac OS X (10.6.7),
"Limit the Logs to the Bits above Binary Images." No, Seriously