Try hitting the Record button on the camera.
I am having a similar issue. I am running Master Collection 5.5, OnLocation, Mac OS Lion, MacBook Pro w/8gb RAM. I have a Sony DV camera hooked up via firewire.
I can see the video feed in OnLocation and can hear the audio. The record button in OnLocation does not respond when I want to record a playback from DV tape. I have tried for hours to find conflicts in software and had no luck.
Here is the interesring part. I can capture inside of Premiere Pro. I ended up using the capture in Premiere to get the video off the DV tape.
I have uninstalled and reinstalled the OL, and rebooted countless times. I am frustrated. A lot of money was spent on this. From my perspective OnLocation is broken. I have used my laptop to go to a client site and capture and log clips and now that ability is lost. I cannot spend a bunch of time on this.
Lastly, I have seen previous posts saying disable the web cam. What about an iSight camera in iOS? Does that interfere?