We have no control over the green light of your webcam, and it is always "on" since the iCamSource is monitoring the video feed to determine when motion occurs to send the push notifications and record the motion events.
I am not sure if it will interfere with Skype or not, but you could easily try that by running both the iCamSource and Skype to see what happens. I could see it being dependent on your operating system, camera, and drivers, so it may work for some but not for others.
The iCamSource supports most MJPEG-compatible network IP cameras. If the camera supports JPEG or MJPEG, it will most likely work.
The iCamSource does require Windows XP or later, however.