Some Xbox 360 owners are finding a "disk unreadable" or "disk unsupported" error after updating their consoles with the most recent update, where the only fix is to have their consoles replaced, according to TG Daily.
At least Microsoft is proactively seeking out affected customers through Xbox LIVE and offering them a new Xbox 360 S (250 GB) plus a one-year free subscription to Xbox LIVE. Kotaku reports that Xbox gamer Avery Penn found out his console is eligible for a new one by email before his DVD drive failed and could no longer load his games. His 360 60GB Pro was bought in 2009 and has a LiteOn DVD drive. Microsoft is certainly learning from Sony's recent troubles with disgruntled gamers who were locked out of the PSN for nearly a month.
According to Kotaku, this update "reflashes the DVD drive to a new stock firmware, and adds support for new XGD3 disk format. It’s this update that allows an extra GB of usable storage on game discs." Eurogamer's Digital Foundry blog believes Microsoft is not just being altruistic in offering customers new consoles: the new update is supposed to beef up the console's ability to detect pirated disks/non-retail disks and prevent them from playing the full game in the future.
If your 360 is affected by the firmware update, contact Xbox Support here or DM XboxSupport on Twitter for assistance. Unfortunately, there is no comprehensive list available to check the impact the update may have on your console before you install it. Microsoft did acknowledge the problem "is not specific to older or newer versions of Xbox 360” so there is only one way to find out. Good luck!
(Note: This problematic update is not the upcoming one that will allow Xbox LIVE customers to purchase content through their PayPal accounts.)