This is how I fix the webcam upside/down problem now, ubuntu 12.04.
I use skype as an example!
Some webcams works perfect with Cheese and other webcam applications, but in Skype you may have a green screen, no picture at all or the picture is upside down!
If you have webcam issues with skype, fix this by doing this:
NOTE1: Skype is a 32bit program so i386 in the above fix is correct for skype since it uses 32bit libraries, even if you use 64bit version of Ubuntu!
echo -e '#!/bin/bash \n LD_PRELOAD=/usr/lib/i386-linux-gnu/libv4l/v4l1compat.so /usr/bin/skype' | sudo tee /usr/local/bin/skype
sudo chmod a+x /usr/local/bin/skype
NOTE2: If the program you want to manipulate is 64bit you have to use /usr/lib/x86_64-linux-gnu/libv4l/ instead of /usr/lib/i386-linux-gnu/libv4l/
If the above fix does not work, try using this instead
echo -e '#!/bin/bash \n LD_PRELOAD=/usr/lib/i386-linux-gnu/libv4l/v4l2convert.so /usr/bin/skype' | sudo tee /usr/local/bin/skype