Prevention
The first thing that needs to be said is that Xbox 360 system failures can be prevented. All it takes is a few simple "Electronics Care 101" steps. I cover everything in depth here in my system storage and maintenance article, but I'll list the basics here.
First, don't put your Xbox 360 into some cubbyhole in your entertainment center. I don't care if it has doors you can open to let the heat out. Don't do it. Heat is the biggest enemy of the Xbox 360, so your best bet is to put it on top of something out in the open or in a wire A/V rack so it is well ventilated on all sides. Don't put it on the ground, either, because it will attract dust and carpet fibers and clog up the vents on the 360. Also, try to put the Power Brick for the system somewhere ventilated and off the ground as well.
Second, don't stack anything on top of your Xbox 360. Putting anything on top of it while it is running, even game cases, will reflect heat back into the system and cause problems. I learned this the hard way.
Third, don't stand the system vertically. There is sort of shaky documentation that vertically placed systems break down quicker (I can't say for sure) but I do know that it increases the chances that the system will scratch discs by about 100%. If the system moves at all while it is running it will scratch discs. Do yourself a favor and don't move it while it is running, and place it horizontal to begin with so there isn't any chance it is going to tip over or move.
Third, keep the system clean. Dirt and dust and carpet fuzz are bad for electronics. Clean your game area up from time to time and wipe the dirt off of your Xbox 360. Also, don't just blow into the vents to clear dust (you're just blowing dirt INTO the sensitive bits), use a vacuum cleaner to suck the dirt out instead.
Breakdown Symptoms
Sometimes even with all the preventative measures you can muster, things still break. The Xbox 360 can have DVD drive failures (won't read any discs anymore, not very common), USB port failures (won't recognize USB devices, not very common), graphics card failures (artifacts or lines appear onscreen while playing games, usually due to overheating and usually associated with something placed on top of the system reflecting heat … didn't I tell you not to do that), the "Red Ring of Death" (three red lights on the front of your system which indicate an overall hardware failure), and, more recently, an "E74" error (black error screen pops up indicating it is an E74 error, basically a general system failure).
There is another issue that isn't necessarily indicative of a breakdown, but it needs to be addressed anyway, which is system freezes where the system locks up and you have to cycle the power button to restart it. While this can be a symptom of a bigger problem (usually a Red Ring of Death), it also can simply be a buggy game. If you have a game repeatedly lock up on you, check online to see if other people have the same problem. More than likely it is just a glitchy, buggy game. Of course, if your system freezes on multiple games or can't go for more than five minutes without locking up, you obviously have a bigger problem.
If you have questions about a specific problem or something, you can contact Microsoft support via Twitter.Warranty
If your system does break down, Microsoft has you covered. For any breakdowns at all, there is a full 1-year warranty where Microsoft will fix the system for free. For the Red Ring of Death and E74 errors, there is a 3-year warranty from the purchase date where Microsoft will fix the system for free. Out of warranty repairs will cost a flat rate of $99.99 if you register for the repair online, or $119.99 if you call 1-800-4MY-XBOX.
Obviously, registering online is the fastest way to go whether you are in warranty or out. You can do this at the Xbox Repair website.
Repair Process
When you do register for a repair, either online or over the phone, the next step is the same. Microsoft will pay for shipping for the entire process, and you have two options to get started. You can either print off a UPS shipping label from the repair website, or you can have Microsoft send you a label, which will obviously add a few days to the overall repair process.
Once you have your label, you will have to find a box and pack the Xbox 360 up yourself. MS used to send boxes out for repairs, but not anymore, so you'll have to be careful to find the right sized box and make sure you use adequate padding to keep the system safe during shipping. I'd recommend wrapping it in bubblewrap (at the very least), and in this case too much padding is definitely preferable to too little, so go crazy. One very important note is that you only have to send the system itself. No wires or cables. No memory cards. No controllers. And definitely no hard drives. You will not get these things back if you do send them, so make sure you only send the system itself.
Once you have the system boxed up, just drop it off at a UPS facility (or schedule a pick up). It takes 2-4 days to arrive at the repair facility and then, depending on the repair, anywhere from 2-7+ days to fix it, and then another 2-4 days to ship it back to you.
When You Get Your System Back
When you get your system back, you'll have some work to do. More than likely it is a different system than you sent in (it is quicker to just replace it than repair it, you see), so your downloaded Xbox Live Marketplace items might not work anymore. You'll need to transfer the licenses to your new system either through Xbox.com or you can also do it from the Xbox 360 dashboard. Full games installed to your hard drive cannot be transferred this way, so you'll need to delete them and reinstall.
Once you get all of this sorted out, you're ready to play.
