I am posting my problem and answer; hope it helps others.

Webcam old logitech; works with Cheese, doesn't work with Skype 4.2 on Ubuntu Precise 12.04LTS.

I tried LD_PRELOADing per various posts, failed. Found out that there are 'i386' and 'x86_64' versions to preload, e.g.

LD_PRELOAD=/usr/lib/i386-linux-gnu/libv4l/v4l1compat.so /usr/bin/skype
For me, Precise 12.04LTS has the 'x86_64' version, but not the 'i386'; where to find? See this link: http://packages.ubuntu.com/search?keywords=lib32v4l-0

I used Synaptic to install 'ia32-libs'. May be 'overkill' in terms of it loaded ~170+ libraries/files, but it will do the trick.

Then, modified the properties of the Skype icon launcher to:
env LD_PRELOAD=/usr/lib/i386-linux-gnu/libv4l/v4l1compat.so /usr/bin/skype
Webcam works in Skype. Note: webcam will not work in Cheese and Skype at the same time.