Which edition of FlashBack are you using?
To remove the webcam altogether you need to be using either the Pro or Plus edition and simply right click on the webcam image and select Delete...
If you just want a section of the webcam to be removed, you will need to you the hide the webcam in those frames. Select the relevant frames and then go to Actions -> Hide webcam in selected frames. This is only available in the Pro edition.
Burt Clouse
I've tried following the directions to remove the webcam (picture-in-picture) from a portion of a video, but the webcam picture is still there during playback (also it still appears in exported files). Any thoughts?