I have the same problem.. I have the iPad2 3G 32G and the front camera just stopped working. I have tried reset and hard reset. I have wiped the iPad and reloaded the OS image onto the iPad but still nothing. This is the second time I have had this issue but the apple shop would not swap it again because its out of warranty.
What makes me sick is not that I paid £600 direct from apple but the £7,000 I had spent at the shop and still did not get any good will. Instead the guy offered me a replacement at £200 with 90 days warranty, great like that's value for money!!!
I have done lots of research on this and it seems to be the 3G models that have the most issue, with bigger storage size. Maybe Apple has clicked to the issue also that's why you cannot buy them now!!! Errr its called a recall apple!