Umm..
The 7805 is an ancient industry-standard linear regulator (definitely not a switching regulator, which would be very far away from the scope of this forum), which is known as one of the least likely to oscillate. Everyone has used them and still does, there are several manufacturers and hence they are dirt cheap in volumes.
It's fairly unlikely that anyone's going to be able to harm their camera with one of them, decoupled or not. The biggest danger I can see is that if you harm the regulator (ESD could do that but the 7805 is not the most prone IC to die from ESD) or connect it the wrong way around, your camera will likely be subjected to your input voltage (such as a 9V battery) and all the current it can source if the voltage happens to be too high for the camera. Also, if the camera happens to have more capacitance than what you put in the regulator input, you should add a diode across the regulator to be extra safe (to prevent output voltage from exceeding the input voltage after you disconnect the battery).
The 7805 definitely doesn't need 10 uF decoupling, a few 100's of nF in the input is enough, nothing required in the output. Low-impedance capacitors like ceramics are often harmful for regulator oscillation, but that's more important with LDO's. In a switching application like this a high output capacitance is bad for the circuit and minimum recommended values should be used. That said, I still think the regulator is unnecessary unless the camera's USB input happens to have the maximum specified USB filtering (10 uF) in it's input (which it probably doesn't because it doesn't use the USB supply for much of anything) and maximum speed operation is required. And even then I'd prefer the two-switch approach with significantly more than 10 uF in the regulator input.
As for liability to damage, it's the DIYer's own responsibility entirely to select who to trust and what to do and to swallow their own losses. This applies to the entire CHDK... I probably wouldn't run 3rd party software if I had paid $30000 for my camera, but for a cheap powershot the financial risk is insignificant. And I certainly wouldn't blame anyone else for frying my camera unless they deliberately (and thus criminally) feed wrong information to do harm to others, be it for their own financial gain or just plain vandalism. And that's definitely not what's going on here.
