Plug in your webcam and make sure it is working correctly. Test this out by making sure it shows up in 'My Computer' and can be opened to view/hear webcam.
1) Open VLC media player software.
2) Select "Open Capture Device" from file menu. This should bring you the DirectShow tab. Click on the refresh list buttons for Video and Audio device names. Select your webcam for the drop down menus. Now click 'OK' and test to see if your VLC displays your webcam correctly.
3) Go back to "Open Caputure Device". This time check the 'Stream Output' checkbox and then go into 'Settings...'. Here is where you set up your webcam for streaming.
4) Check off HTTP, enter in your local IP where your webcam is connected. Use the default port 1234. Under 'Encapsulation Method' check 'ASF'. Then check Video codec, choose 'DIV3'. Audio codec check 'mp3'. Cliqk ok.
Now open notepad and type in:
http:\\{ip address of pc}:1234
Save, then change extension to .strm file. You can open this on the Xbox by browsing the network to where you saved it or FTP it to a local folder on the Xbox.
Remember that the VLC player must be running for this to work.
Good luck. The above instructions work for me. Detailed instruction for this are located at the VideoLan website.