I saw a couple of people having camera problems after 1.3.5 and they had a few patches installed that I did as well. I did a little trouble shooting and here is what I found. It appears to be fixable!

Patch: 4x4 Icons v3
Maintainer: onlinespending
Version: 1.3.5-1
Last Update: 12/7/09 1:45 AM
ID: org.webosinternals.patches.app-launcher-4x4-icons-v3

Problem: Camera application will not launch. Icon will light up upon touch, but nothing else.

Fix Found by me: Uninstall 4x4 Icons v3, restart Luna, reinstall 4x4 Icons v3, restart Luna again.

Other patches installed:
Battery Icon and Percent v1.3.5-1
Character Counter v1.3.5-1
Disable Charging Alert Sound v1.3.5-3
Enable LED notifications v1.3.5-1
Hyperlinks in Descripts v1.3.5-1
Match State to Area Code v1.3.5-2
No Auto-Off While Charging v1.3.5-6
Unhide Dev Mode Icon v1.3.5-1
Video Downloads v1.3.5-1