I am using silverlight from which I can get the output of my webcam, but I am not sure how to send my webcam output to the person with whom i am chatting.
The behaviour required is that i can view the webcam view of mine as well as the person with whom i am chatting....
Honestly I am not familiar with how to do this in Silverlight. In Flash you can use a flash communication server as an in between to push the video stream out and pulls the other persons video stream in. I am guessing you could replicate this type of functionality in .Net but I don't know that there is a built in way to do that. You can also check out the following link which might help.
The next thing you need to do is encode and stream your video captured from the webcam. Unfortunately, although Microsoft now allows us to capture the raw data from a webcam, it does not provide a way to encode/decode them. So you will probably need to buy a 3rd party control.
Once you do get past this encoding issue, what you will need to do next is have a seperate program running on your computer (or on another computer). The job of this program is to wait for incoming requests and encode and stream the video that comes into it and send it to the person on the other side.