Skype Crashes Video Driver

I'm having trouble getting skype to recognize my Logitech HD Webcam C310. When I go to Call > Audio Settings then click on "Video Settings" (because the "Video" option is grayed out in the drop down) none of my web cams will load. I tested with another program to verify the cameras worked and they did. I am currently running a Windows 7 64 bit computer with the latest version of Skype 6.16.60.105. 
Here is what happens
1. Go to video settings as described screen flashes (graphics driver is restarting) then no cameras load in the black screen previews
2. Pop-up message from taskbar saying graphics driver has stopped and been successfully restarted
2. Quit Skype try again computer will blue screen with an error caused by the dxgkrnl.sys driver
My Skype has been working fine until I updated it recently (as in a couple days ago because I finally remembered to update Skype) and it no longer worked.
Things I have tried and can hopefully be eliminated
1. Downgrading to older version of Skype
2. Updating graphics card drivers via Windows Update and the manufacturer (most likely not the card because like I said it was working fine until I updated Skype)
3. Not a heat issue. My computer runs no hotter than 29 degrees Celcius (only saying this because it was a suggestion from another site for a dxgkrnl.sys driver related problem)
4. Not a bad card. It's not even a year old and works fine otherwise its an AMD Radeon HD 7800 series
System Specs
AMD FX(tm)-6100 Six-Core Processor 3.30 GHz
8.00 GB DDR3 RAM
Other things that are probably not important
Recently set up a local server on my computer which I read can conflict with Skype and how it uses network ports. However there is not a port confliction and it should work fine and I highly doubt that had anything to do with the display problems.
My only conclusion is that it's a problem with the latest version of Skype or there is some other driver that needs updating.
Any help is appreciated. I am very computer savy so if there is any additional information you need I can get it for you. (ie event viewer logs, BSOD errors/parameters, ect)
Thanks in advanced
Solved!
Go to Solution.

Please,  run the DirectX diagnostics tool.
Go to Windows Start and in the Run box type dxdiag.exe and press the OK button. This will start the DirectX diagnostics program. Run this diagnostics and save the results to a file. Please, attach this file to your post.
Be aware that you will have to zip this file before attaching it here.

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