Hello, for those having problems with this config or using similar vimicro device, i found this link to be the one that solved my problem.

http://www.ubuntugeek.com/tip-gettin...in-ubuntu.html

Basically, the device 'zc0301' is giving problems and the tip involves disabling it.

sudo modprobe -r gspca
sudo modprobe -r zc0301
sudo modprobe gspca

shows also how to make permanent by editing /etc/modprobe.d/blacklist and adding

blacklist zc0301

This tip worked like a charm, and video was working in skype. Thanks, UbuntuGeek!

Left this for people having similar problems