If the image looks weird, it probably means that it's not the supported resolution by your camera.
Actually, I haven't tested all possible resolutions before, so there might be a bug in the code as well.
The larger the image you use for marker tracking, the slower the processing will be, so I usually just use 640x480 resolution.
I've never used Micrsofot LifeCam Show before, so I can't really tell what's exactly the problem is.
The best way to check is to use the CaptureTest project which you had to download for Goblin XNA installation.
If it works fine with CaptureTest using your specified resolution and the same resolution doesn't work with Goblin, then it's a bug in Goblin framework.
Please let me know if you find the exact resolution which works fine with CaptureTest, but doesn't work with Goblin, so I can fix the problem for the next release.