Which version have you currently got? Look in the "about phone" menu. I'm guessing you didn't install this yourself, or you'd know how to do the update.
Have you tried "clear data" for the camera app? It's a long shot, but you never know, it might be as simple as that.
Have you got an app called "Titanium Backup"? If not, install it from the market (if it gives an error when you first try to use it, press the "problems?" button and download busybox). Use this to back up your apps and data.
Before doing any update you want to take a backup from recovery (a "nandroid" backup). Boot the phone while pressing the "volume down" key. When you get a while screen with a few lines of coloured text, select "recovery". Should bring you to a black screen with coloured writing (probably green) - it might help if you can tell us what version, which it should say on that screen. There will be a "backup" option, which you should select. Make sure you have at least 500 MB space on your SD card, preferably more.
When you've done all of the backups we can worry about the update - the above were just precautions in case something goes wrong. You do the update by copying the downloaded file to sd, booting into recovery, and selecting the install from sd card option. But we'll need to know a little more before recommending a version.
Finally, but most importantly, have you read the rooting faq? It's linked from the "all about rooting" sticky post (red link in my sig). I know your phone is already rooted, but there's other stuff in there which will help, so I suggest reading it - that way any advice or instructions we give, including the above, will make more sence.
