I fired up an old demo (January 2014 time frame) I built and everything worked fine. I then installed the latest version of the SDK and ran the sample and sure enough, I had the same issue.
The issue is due to an exception when you try to set the owner of the Microsoft.Lync.Model.Conversation.AudioVideo.VideoWindow.
It turns out, there was a change in how permissions are handled for taking over this window. The "fix" for now is to place the application into the user folder of the account running the program. I tried this and it does, indeed work.
Here is the offending from ConversationWindow.cs:line 1128...
//sets the properties required for the native video window to draw itself
videoWindow.Owner = videoPanel.Handle.ToInt32();
Here is the error:
A first chance exception of type 'System.UnauthorizedAccessException' occurred in Microsoft.Lync.Model.dll System.UnauthorizedAccessException: Access is denied. (Exception from HRESULT: 0x80070005 (E_ACCESSDENIED)) at Microsoft.Office.Uc.VideoWindowClass.set_Owner(Int32 Owner) at Microsoft.Lync.Model.Conversation.AudioVideo.VideoWindow.set_Owner(Int32 value) at AudioVideoConversation.ConversationWindow.ShowVideo(Panel videoPanel, VideoWindow videoWindow) in c:\Program Files (x86)\Microsoft Office 2013\LyncSDK\samples\AudioVideoConversation\Conversation\ConversationWindow.cs:line 1128
References: UISuppression Video Issues
A clarification from the Lync API engineering team: The unauthorized access (or COM) exception that you may get when assigning an owner handle to the VideoWindow is resolved by copying the sample project out of the \Program Files(x86)... folder to a user folder. Compile and run the project in the user folder and you will not get an exception.