Hi Rich, thanks for posting back to me on this issue.  Yes, webcam was under Imaging Devices as working correctly. 

But tell you what, I have some good news!  Sony/Windows must have seen my forum question, so I got bombarded with no less than 68 Windows7 updates late last night!  Wondered why so many of them had "Vista" in the titles, but searching around the net at work in my lunch hour today, I discovered about 5 similar webcam issues with Sony Vaio users, and they were all on Windows 7 forums.  The gist seems to be that certain Sony webcam drivers are not recognised by Windows7 as it is still such a new application.  The solution presented by everyone seemed to be to download the driver again, but in Compatablity mode, and as a Vista app (not Windows7) - this seemed to do the trick for everyone.  I was going to come home and try this today, but the updates from last night worked the magic anyway.

Much appreciated again you getting back to me and assisting.  Am thrilled with the VPCL22K1E Sony all-in-one though - a lovely machine all round so far!

Best wishes - the one who drives the taxi's in old Bombay!