I've had one heck of a time with Microsoft regarding this problem.
First a little background, if you aren't interested, skip this paragraph. I bought my original 360 on launch day (xbox #1), and was oh so lucky enough to get one with a faulty power brick (though I didn't realize it at the time). So within a week my 360 gives me the red lights. Of course I called MS and got a replacement, BUT they sent me a box only big enough to hold the console, not the brick as well (since at that time I didn't know it was the brick that screwed me, I didn't think about it). No hassle at all and I got a new replacement console (xbox #2). Later I started reading some of the forums and discovered the power brick issue, and at about the same time my replacement 360 gives me the red lights. So I call MS to tell them I'm getting red lights, and that my power brick is one of the defective ones. They appologize for not catching it earlier and I get another replacement (xbox #3), this time with a new power brick.
It is at this point I'd like to tell you how well I take care of my 360. I keep it laying horizontal, on top of a secure desk (no shaking), nothing ever bumps into or hits the console or desk, I dust all I can with a Dust-Off spray on a monthly basis, I never travel with it, I always take my discs out of the console when not in use, and I always store the discs in their original cases.
The next problem came up pretty soon after getting the new replacement, I just didn't think it was caused by the 360 at the time. I'd been playing Oblivion for a little while, and occasionally noticed an increased amount of noise coming from the disc drive. I didn't really think anything of it and continued playing. A short while later and I was presented with a disc read error. I opened the tray and lo and behold my disc had one or two little radial nicks on it. For some reason at the time I thought I must have scratched it myself somehow and decided to repair the disc and not think anything of it. Then there was a period of time when I didn't really use my 360, though I still maintained it. After a while I started playing games again. I played Amped 3 for a little while and it was scratched by the console, though was still playable so I ignored it. I played Oblivion somewhat frequently; every once in a while it would have a new scratch on it untill it eventually became unplayable. Dead Rising came out around that same time; on the first day I had it my 360 scratched it, and it was no longer playable. Of course by this point I'd realized my 360 was the cause of the scratches. So I call MS, they tell me the whole deal like "Oh, it's user error" blah blah blah, and they tell me I need to check with the store I bought the games from to get replacements. I give them the benefit of the doubt and make doubly sure I'm doing everything I can to prevent the disc scratches. Some guys I know over at Gamestop were nice enough to get me replacement copys of Oblivion and Dead Rising.
I go another two or three months without too much of a problem; the only game that gets scratched often is Oblivion, so I just decide not to play it. Then Gears of War gets released, but is rendered unuseable by my 360. Again, I call MS, I tell them I've been following their instructions to the letter. After and hour or two on the phone a manager OKs the repair. So I get what I think is xbox #4 (more about that in a minute). I decide to get another copy of Oblivion, this being what I think is a new console and all. After a few months, same thing happens, it is scratched to the point of unuseability. Guitar Hero II just came out as well. First day, it gets a minor scratch in just the wrong spot; I could no longer play at a certain venue without it producing a disc read error. I immediately got a replacement of course. As soon as I got home I called MS again, and as I was writing down the console's serial number to give to the support agent, I noticed the number was the same as my previous one; even though all others before it were different. The MS agent told me simply, "We have done extensive testing on this problem, and have found it's only cause to be user error. If you send us your console with this problem, we will send it back." They would refuse to repair the console, and basically told me that last time I sent it in, they merely sent it right back.
Microsoft is lucky I enjoy my 360 so much, otherwise I'd just get rid of it and never deal with it again. So instead I've decided I'm going to trade-in my current console at Gamestop toward the Elite for $250, and get a 2 year warrantee through them, bypassing MS support all together.