The cause and the best course of action regarding the hardware failure known as the three red lights.
There are but a select few things that truly frustrating to an owner of an XBOX 360. Not being able to beat the last level of a game, trying to track down a game that is seemingly sold-out world wide, and likely to most frustrating, turning on the XBOX 360 just to find three flashing red lights surrounding the power button.
It goes by many names: three red lights, general hardware failure, and the ring of light, but they all mean the same probable end. The XBOX is dead, hence the gamer community's favorite term for it, the "Ring of Death".
This hardware failure has been most commonly caused by issues with the soldering which connects the main processor to the motherboard. During game play the XBOX 360 generates quite a bit of heat. When the system is turned off, it cools down very quickly. This constant change in temperature can cause cracks in the soldering, preventing the processor from making a good connection with the motherboard. Microsoft is repairing the problem by replacing the soldering, and insuring it is proper, lead-free solder.
When the issue first began, if an XBOX 360 was outside of its warranty, the repair cost owners somewhere in the neighbourhood of $100. This spawned many websites advertising the repair of XBOXes for much cheaper prices. Searching the internet for the "Ring of Death" will still return many of these websites in the results, but is not the recommended course of action.
The internet was also flooded with reports of the "Towel Trick". The idea of the "Towel Trick" is to take an XBOX that has the three red lights, wrap it in a large towel and leave it turned on. This is supposed to overheat the XBOX, heat up the soldering and repair any cracks. According to numerous sources, this does work, temporarily. The system may function for a few hours, a few days or maybe even a few weeks, but after some time, the system will flash the 3 red lights again. It has also been proving that using the "Towel Trick" could harm the system even further and maybe even void the warranty. Therefore, this is also not recommended.
This problem became so common that Microsoft decided to extend the system's warranty to cover this particular problem for a full three years. Gamers who find themselves with the three red lights should call Microsoft immediately at 1-800-4MY-XBOX. A Microsoft agent will take all the necessary information and a prepaid packing box will be sent within a few days time. Once the XBOX arrives at the nearest repair centre, it will either be repaired or replaced, and sent back. All at no cost, as long as it is covered by the warranty, and the system has not been tampered with, or opened by an unauthorized person.
Not only is that the simplest and best way to get the problem solved, gamers from around the world are reporting on forums that Microsoft has been repairing or replacing these systems within a week, including shipping time.