It's possible that the camera has become defective. Do you live close enough to an Apple Store to take the iPhone in for a Genius Bar appointment to have a diagnostic check done? This would confirm whether or not you have a hardware problem.
Genius Bar appointments at the Apple Store are always free. If the problem is software related, the fix is usually free as well. If there is a hardware issue, they'll tell you exactly what's wrong and what the repair cost will be. If there is a hardware problem, you may want to consider updating to a newer iPhone as the iPhone 4 is as much as 4 years old by now.