Not that it puts me any higher on the hierarchy of ZP's message board, but I've been working with Gamestop for a few years and want to hopefully clean up that whole messy "360 can bite my balls from behind while flashing the circle of doom in my asshole" thing.
Essentially the first two generations were faulty. They didn't put a heatsink over the board and the board couldn't handle the heat itself was putting out. After playing for more than a few hours (which if you imagine the first few 360's being tested by Microsoft probably weren't on for more than 15 minutes in front of investors) they start to overheat, causing TWO things. One, the chipsets begin to come loose from the sodder and drift. Two, the main chip begins to sizzle and loses the ability to process graphics. AKA Red Ring of Death.
Because people are so ADD these days, not having a 360, after having paid what should've gone to your rent or car payment for the month, people will freak out and undoubtedly send it in for repair. Upon receiving the new one (still messed up on the insides), they are greeted with a Fantastic Fuck You from Microsoft with yet another Ring. Some people I've talked to have done this upwards of TEN (!?) times. This is just plain ridiculous. Simply put, they realized the problem and "fixed" it, by putting in a new chipset, called Falcon. Falcon did fix SOME of the heat, but not a lot of it. Generation 3 brought forth the rebirth of the 360. Most systems made AFTER August of 2007 will experience little to no problems. Anything before that makes an incredible door stop.
Most people gave up and said it's garbage without turning around. I do not blame anyone for this. However these are probably the people that WOULDN'T read this post even if I told you the 360 now has a built in jerk off function, which is why the controllers vibrate so much harder now. They went to PS3's, played the 5 good games on the system, and started playing their old PS2 games on it and telling people how WONDERFUL blu-ray and 1080p is. They forget to mention that as high-tech as the PS3 is, most games won't even play in 1080p and they probably won't for another year and a half, due to how awfully hard it is to actually code for the great black beast. Great connectivity though, awesome little things you can do with it, like play your PS1 games and Blu-Ray movies on your PSP whilst on the go (as long as wi-fi is ever close).
Give the 360 another chance now that they've fixed their mistake. The game library alone is worth another look through. Is it the second coming of Jesus? Probably not. But that jerk off function is totally worth it