I was a bit facinated by your project so I sat down this evening and tried to make a web cam over udp style thing with multicast, so that you can send one cam to 20 people if you like ...
This uses the UDP library at http://hypermedia.loeil.org/processing/ and the ImageIO that comes with JDK 1.4.4 and up.
If I havent screwed anything up, you should be able to start this on two different machine on the same network and when you press C on one of the machines, it should start transmitting its webcam to the network. Anyone listening (other computers or itself) should start displaying the image. Local web cam is left part of window, remote frames is right part.
There is an issue if more then one of these programs are transmitting at the same time. Since its multicasting, it receives its own frame as if someone else sent them, so two apps transmitting will result in flickering between the two sources on both machines. This is solvable though. You could probably use a header at the start of the datagrams to identify who the sender is and allocate a part of the window for each machine, but this is left as an exercise for the user
I have tried to stuff some comments into the Java code, if anyone has any questions, comments or improvements, please do respond. Feel free to use this code as you please, its there for people to learn
Source Code: http://prosjekt.be/WebCamOverUDP.pde