Have you looked at the Foscam cameras? 80 bucks, wifi, does everything you want and more. They're all over ebay and Amazon. Cheaper than an arduino and an ethernet shield and far more capable. If you want to hack them they're running embedded linux and you can find instructions on the web for uploading your own code.
Below is the info on how I made the pan/tilt cam in the link I posted. It has been on line 24/7 for 6+ years (the servos do need replacing every couple of years). For small cams, cheap $5 servos will work.
You connect the 100 ohm resistor between the reset pin and +5v pin.
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