First of all everyone knows the N900's current firmware's front camera is poor at best.

The mirror application is poor on resources.

Here is an alternative.

Install mplayer form one of the repositories. I do not think it is officially supported, so WARNING and know what your doing, blah blah blah disclaimer.

After mplayer is installed, open up x terminal

For the front camera use the command
For the rear camera use the command
There is no need to mirror the rear camera.

You should be able to use mencoder to record without the amber led once it shows up in your repos.