I recently did a complete new install of windows 7 ultimate 64bit on my hard drive and now windows installs drivers for iphone camera fine. So after connecting iphone to pc, it appears in explorer under my computer as if it were a usb stick and I can browse the folders to see the pictures and copy them to somewhere else.
Now you're probably thinking I don't want to risk a fresh install of windows unless I'm really certain this will solve my issue. What I did is I created a disk image of my main C: drive and saved it to an external usb drive. Then I created a bootable rescue disk with which I can start up the pc, select the image from the external drive and recover everything to the state it was before the image was created. I used acronis true image home 2011 for this but maybe you have something similar or maybe even windows 7 backup can do this, I'm not sure.
After backing up the present state of my pc into the image, I did a complete reinstall of my windows. Then connected iphone to test it and no more error message concerning drivers. So then I put all my software back onto the pc and my backups.
I spent hours and hours on this, and finally figured out and fixed my problem. However, this solution is ONLY good for Windows 7 N or Windows 7 KN. To find out what version of Windows you are running, follow the instructions at http://windows.microsoft.com/en-US/windows7/help/which-version-of-the-windows-op erating-system-am-i-running
If you are running Windows 7 N or KN, the sad truth is that your OS does NOT HAVE the software needed to connect your iPhone as a digital camera! However, the good news is that this is easy to fix. The fix is at http://www.microsoft.com/en-us/download/details.aspx?id=16546
I installed that, and everything just magically started working the way it was supposed to.