What I have:
My system: MacBook Pro Core 2 Duo
Parallels: Parallels Build 3188
VM: Windows XP Professional with SP2
What you will need:
Aside from MacBook/Pro and Parallels, you will need the the iSight driver, which you can download from here (http://www.maconlysource.com/?p=885) [click on iSight Drivers]
Steps: (for first time selection of Built-in iSight under VM)
1- Log on to your Virtual Machine as usual
2- Copy to anywhere on your C drive [windows desktop] the iSight driver you downloaded [Please note that you will need to unzip the file]
3- From Parallel menu on OSX click Devices --> USB --> Built-in iSight
4- Then the Windows hardware wizard will start
5- Under the hardware wizard choose manual installation and browse to the iSigh driver folder location.
6- Click ok and then next
7- The driver will be installed normally
8- You can immediately see the Built-in iSight camera on [My Computer]