This may seem obvious to some, but then again, I’ve mistakenly held my Windows Phone 7 the wrong way once or twice while trying to use the “pocket to picture” feature where you simply hold down the camera button for a few seconds in order to launch straight into the phone’s camera app in order to quickly take a picture. The problem is that if your hand is covering the phone’s proximity sensor, the phone thinks it’s still in your pocket and the camera button is being held down accidentally. In that case, it will not launch the camera because it doesn’t want to be accidentally taking pictures and running the battery-hogging viewfinder in your pocket.
Have you ever been holding down that camera button expecting it to launch the camera, but nothing happens and you couldn’t figure out why? This is probably the reason.