This demo shows an open source Windows Phone 7 photo effects application called PicFx. The user can choose an image from the picture library or take a picture with the camera. Then an effect can be applied and the result can be saved to the media library. The UI uses the Pivot template. The effects of part 2 include different Polaroid-like effects and Tilt Shift (miniature faking). The Black & White and Sepia effects from part 1 are also included.
The source code is available here:
This Coding4Fun article explains how the application was built:
Background music is "A Silent Goodbye" by NCThompson: