Apple was very prompt with their phone call to me. The agent stated that if I've tried to restore to factory and that didn't work then they will replace the IPad. New one shipping today. (Warranty claim say battery life though. Kind of odd) she also stated it was the first IPad2 she had done a warranty replacement on, and that she had never heard of that problem before. Weather that was lip service or not at least they were good to offer a replacement very promptly.
Had same problem. Several restores and hard reboots didn't work. Then I simply turned FaceTime on and off in Settings and that restored the camera. Crazy.