It is, in part. If the magnet is not holding the relay shut, the sensor is ignored. This is why having the back off doesn't trigger the camera app. So having the magnet missing will indeed affect the camera starting, since it thinks the back is off.

If you have the magnet in place and it's still not registering the slider, then it would be worth checking the lens on that sensor. It may also be that the coloring has worn off on the slider itself. A small bit of nail polish or paint may help with that.

There's a handy app in the devel repository (hardware health checker, or some such) that lets you see the state of most sensors in the N900. I'm pretty sure that includes the camera slide sensor and the magnet.

Good luck!