The flash memory on the XO is relatively small: only 1g. To use it as a camcorder may be a little too harsh. But there are many ways to get around it!
The record program, http://wiki.laptop.org/go/Record#Collaboration
, currently "does not support real-time sharing of video or audio." But the record program is written in python, hackzine
has an article that shows how to increase the length of videos recorded. Finally, since the onboard memory is relatively small, you'll have to use the journal to move your videos onto your SD card or USB flash to clear up some room.
It's not the most elegant solution, I know, but it's the quickest, least hacky, way to do what you want to do. The farther you get from the intended usage of the XO, the more involved you'll need to get to find your own solutions. The hardware is there, the software may take a little work in finding =)