Since its launch, numerous reports claimed that Xbox 360 suffers from an unreasonable failure rate. In fact, the article you are currently reading has replaced a news report claiming that Xbox 360 failure rate is a staggering 33%.
Facing failure accusations, Microsoft maintained two official responses: (1) Xbox 360 failure rate is within industry standards and (2) it doesn't matter if your Xbox 360 fails, what matters is how fast was it fixed.
But suddenly Microsoft changed tone and admitted the problem. Some people would believe that Microsoft have just discovered the issue and fixed it, as expected from a reputable multinational company. But when asked, Robbie Bach, president of Microsoft's Entertainment & Devices Division for a "little over first year" the "set of issues wasn't visible at all," but during the last couple of months the company has seen "significant increases, significant call volume, and significant attention" to the problem. During those "couple of months" Microsoft actively denied the problem several times.
Although Microsoft have already admitted the problem, but they still refuse to declare that actual Xbox 360 failure rate. We do however know that they have assigned 1 billion dollars to fix what they cited "an unacceptable number of repairs to Xbox 360 consoles". If this budget is meant for repairing failed consoles and nothing else (RROD related R&D for example), it would mean that they'd be fixing around 1 third of the 11.6 million Xbox 360s sold up till now.
After admitting the problem, Microsoft decided to extend Xbox 360 warranty to 3 years, but only for RROD failures. "If a customer has an issue indicated by the three flashing red lights, Microsoft will repair the console free of charge -including shipping- for three years from the console's purchase date", said Peter Moore, Microsoft corporate vice president in an open letter to Xbox 360 Community. "We will also retroactively reimburse any of you who paid for repairs related to problems indicated by this error message (general hardware failure ) in the past."
The open letter also states that Microsoft "have identified several factors that can cause a general hardware failure " and " have already made certain improvements to the console". Most probably, those improvements include an extra heat sink that Microsoft has been adding quietly to newly repaired consoles.
Off the open letter, Microsoft confirmed that the issue was "Microsoft's responsibility", and that their manufacturing partners have "done good work", but the problems arose from a "Microsoft design challenge," which they "can now engineer around".
Xbox 360 owners might want to read Peter Moore's open letter through the link available in the downloads tab.