Microsoft's Xbox 360 was the first to market in the "next generation" console race and is leading in total sales so far. Nintendo's Wii has been selling at a breakneck pace in the United States, but the Xbox 360 has held a comfortable lead over the Sony PlayStation 3.

Furthermore, Microsoft has a rather palatable portfolio of titles for gamers to choose from along with its robust Xbox Live online service. Microsoft has even reached out to the community with its XNA Game Studio Express developmental software.

But there is one pitfall that Microsoft has not been able to get away from with regards to the Xbox 360: the infamous Red Ring of Death (RROD). The RROD has been the perennial thorn in the side of the Xbox 360.

In September of 2006, Microsoft offered free repairs to customer that purchased Xbox 360 consoles manufactured before 01/01/2006. Microsoft noted that the reason for the generosity was due to "higher than usual number of units coming in for repair."

Three months later in December 2006, Microsoft decided to boost the Xbox 360's warranty to a full year. Customers who had already paid for repair service were mailed checks for the full repair costs by Microsoft. "Customer satisfaction is a central focus and priority for the Xbox 360 system," said Jeff Bell, corporate VP of Global Marketing for Microsoft's Interactive Entertainment Business at the time of the announcement.

Despite Microsoft's best efforts, Xbox 360s afflicted with the RROD continued to roll in for service. In April 2007, the company decided to bulk up its warranty services by offering free shipping for consoles in and out of warranty. Microsoft also announced that customers who sent in consoles under warranty would receive an additional 90 days of warranty service -- in addition, consoles that were sent in for service when out of warranty would be returned with a fresh one-year repair warranty.

At the time, the company also announced faster repair times for consoles (within five business days) and the addition of more staff to handle customers’ needs.

All the while, Microsoft remained mum as to the actual problems with the Xbox 360 and declined to give a failure rate for the console. In May, Microsoft's Peter Moore said that “I can’t comment on failure rates, because it’s just not something  -- it’s a moving target. What this consumer should worry about is the way that we’ve treated him. Y’know, things break, and if we’ve treated him well and fixed his problem, that’s something that we’re focused on right now."

Most had speculated that the problems related to Xbox 360s becoming afflicted with the dreaded RROD was because of lead-free solder joints on the GPU and poor cooling within the case. Xbox 360 consoles with upgraded cooling hardware began appearing in Europe in early June. Microsoft responded with "no comment."

Earlier this week, DailyTech reported that the failure rate for the Xbox 360 was as high as 33 percent according to some retailers -- Microsoft had previously stated that the failure rate for the Xbox 360 was in the three to five percent range. “The real numbers were between 30 to 33 percent,” said former EB Games employee Matthieu G. “We had 35 Xbox 360s at launch. I know more than half of them broke within the first six months (red lights or making circles under the game discs). Two of them were dead on arrival.”

The RROD problem is so bad that some companies have even refused to repair the console. “This problem is endemic on the Xbox 360 console and the volume has made this repair non-viable," said Micromart, a UK-based game console repair company. “The work we had done to the console lead us to believe that basically it was a fault with the motherboard and not something that could be resolved easily. And it wasn't going to go away,” continued Micromart's Jeff Croft.

Although it doesn't appear that Microsoft has made any changes to stop the Xbox 360 from coughing up the dreaded RROD, the company announced today that it will set aside $1 billion USD to fix "an unacceptable number of repairs."

"This is just one of those things that happens when it happens," said Microsoft entertainment and devices division president Robbie Bach. "We reached our conclusion early this week and because it's a financially meaningful issue we had to announce it immediately."

Peter Moore remarked that "The majority of customers who own Xbox 360 consoles have had a terrific experience from their first day, and continue to, day in and day out." He was also humble enough to admit that "Some of you have expressed frustration with the customer experiences you have had with Xbox 360; frustration with having to return your console for service after receiving the general hardware error message on the console."

As a result, Microsoft is extending warranties of Xbox 360s afflicted with the RROD to three years from the date of purchase. The company will also retroactively reimburse repair costs for anyone that sent in their Xbox 360 for the RROD.

"In doing so, Microsoft stands behind its products and takes responsibility to ensure that every Xbox 360 console owner continues to have a fantastic gaming experience," said Moore. "If we have let any of you down in the experience you have had with your Xbox 360, we sincerely apologize. We are taking responsibility and are making these changes to ensure that every Xbox 360 owner continues to have a great experience."

Microsoft’s generosity is commendable, but until the actual cause of the problem is identified and taken care of, this may all be for naught.