It may be a software issue if the green light comes on but there is no image. Try a PRAM reset.
Otherwise it looks like it will be a hardware fault, in which case you should book a genius bar appointment. My 13" MacBook Pro's iSight stopped working last year (no camera connected message appeared in Photo Booth). I took it to an Apple store, and the genius determined there was a problem with the iSight cable. The solution was to order in a replacement top assembly, which took three days to arrive at the store, during which I kept my MacBook. When I dropped it off again for them to switch the displays they told me it would take 5-7 days, although I got an email that evening to say it was ready to be picked up the next day.
My repair was covered under the 12-month warranty, but the document I signed when I collected it indicated that the out-of-warranty repair cost was just over £800 (~$1300).