I experimented with 2 different things. The Original file size for the wallpaper on the Camera app is 192x192. I edited a photo to be that size (the black and white one) and did the steps below. I then redid another one with a 854x480 pixel size photo and it also worked. So Anything up to 854x480 will work! Finally no more ugly grey looking wallpaper when taking pictures!
You must be rooted with busybox Click here for instructions to get busybox after being rooted. BusyBox Install
This is for a non-deodexed Camera.apk. So not safe for Smoked Glass Rom. If using Smoked Glass Rom, use this one ONLY SmokedGlass-Camera.apk
Also as another thing, I copied and pasted the new bg_camera_pattern.png I wanted through Windows Explorer, not directly through Winzip/winrar.
Download the Camera.zip below (the correct one for your)
Open the zip
Click on res
Click on drawable-hdpi
Replace the file bg_camera_pattern.png with the picture of your choosing
Close the Zip
Rename Camera.zip to Camera.apk
Copy Camera.apk to the root of your SDCARD
Dismount from your computer
Open up Terminal Emulator
enter exactly this below
Code:su mount -o remount,rw -t yaffs2 /dev/mtd/mtdblock4 /system busybox cp /sdcard/Camera.apk /system/app/Camera.apk chmod 755 /system/app/Camera.apk sync reboot