"If you upgrade to another sp bad thing WILL happen..."
You are SOOOOO wrong thinking this way! Get your head out of the sand and update to SP2 now. There are so many updates released after XP, SP2 that you are missing. You must have disabled Microsoft Update totally. XP, SP3 is on the horizon soon too. If you still refuse to upgrade to SP2, why don't you just delete XP and go with Linux or something else.
The link I provided tells you that you will have to set up video hosting account. Follow the instructions. Any USB webcam should work for you, especially if you update XP properly.
Good Luck