MacBook Pro Webcam – Understanding the Link Between Webcam and LED Indicator

I'm fairly certain the green light is hard-wired to the camera, there's no way to activate the camera without activating the light, precisely for privacy reasons. If you're really concerned about it, you can always just use a piece of electrical tape to cover the camera (or fold a piece of cardboard over the top of the lid for a non-sticky solution).

Frankly I wouldn't worry too much about the risk of malware. That particular piece of malware (MacDefender) was contained fairly quickly by Apple, it's very unlikely that you could be infected by it now, unless you maintain an unpatched system. There have been a few OS X security issues lately (such as Flashback), and they get a lot of press, but the actual amount of harmful software out there for a Mac is extremely low.

My advice is to keep your system up to date and avoid downloading files from questionable sources. But other than that, don't worry too much, unless you have a highly sensitive job (in which case there should be other people whose job it is to worry about it).

This research paper reported by the Washington Post and Ars Technica says yes.

Though it was only tested on "old" Macs (Late PPC, early Intel)