Yes, your cam shaft is not turning because your crankshaft is not turning. Remove the bottom oil pan and check for excessive metal. You can rebuild these engines quite easily.
Problem with these vehicles is the engine compartment isn't sealed, and airflow isn't really optimized. There are pieces of tin on the bottom of the engine which normally seal off the engine compartment. I don't know if yours were left in or not. In anycase, these kinda-sorta direct airflow over the cylinder heads. If they're not there, your engine runs hot and eventually it affects your oil quality.
It's also possible that the oil pump is bad also. Everything on an aircooled is run off the crank so yeah, your cam, your oil pump, no good, sitting in the bottom of that sludge.
You can actually rebuild these things using pretty basic tools. When you get to the point where you need bearings you need to get some plastigauge and measure what size you need. If I remember correctly the cam is notched so you just line it up with the crankshaft. If you don't want to do that at least break it down and check it out. Pretty cool stuff.