Rockwell was right
According to this News.com article, the Rbot-GR virus allows hackers to spy on unsuspecting users by taking control of their webcams and microphones.

I have been considering getting a networked webcam (like the Veo Observer) that would allow me to log in to it remotely. The thought of hackers being able to tap into the camera makes it a little less attractive. The security analyst in the News.com piece suggests turning off your webcam when not in use; however, that kind of defeats the purpose of having a networked camera.