I have a webcam built in to my laptop with a little LED that lights up whenever an application uses the camera. Is this LED controlled on hardware level? If not, does Windows have special provisions that prevent a malicious webcam driver from disabling it?
Every webcam could be different, but, from everyone I have seen, the light is not controllable/accessible from the operating system - it is simply activated/deactivated on the webcam itself when the webcam is in use.
Based on this, not saying it is impossible, but, it is impossible on every laptop I have seen.
Recent security attacks against Apple cameras on laptops show it is possible to reflash the firmware and disable the light on the camera.
Again, this is very dependent on hardware - if the light is activated inline with the camera, it won't be possible to deactivate. If like Apple, the light is just turned on/off as part of an unrelated firmware command, you will be able to patch it out.
I think it's more probable to be a malfunction in your software, the driver, or it can be a hardware issue too. So it's possible to be a specific malware that is doing this, it's possible but very, very rare this to happen.