Microsoft strikes again, the dreaded red ring of death
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The first option might be to go all out and buy a brand new xbox. After all, the prices have dropped, and it's only $299 for a brand new Xbox. One of the best benefits of the new Xbox 360's is the HDMI output, the older versions only had the HD Component cables which pretty much eliminates its coexistence with your cable box, so that you're forced to decide between killing your friends in Halo 3 in high definition, or watching the Jaguars whoop up on the Titans in HD.
Another bit of good news with buying a new 360 is that the hard drives are larger as well. Gone are the miniscule 20gb hard drives, now you can get 60gb with the Xbox basic, and 120gb with the elite. Not a bad upgrade at all.
The new 360s have been redesigned as well, so that most of the issues with overheating should be avoided now. It does appear that the newer versions have much smaller failure rates. Time will tell if the new 360s will stand the test of time and heat.
Second, for those with electronic experience, the repair itself is pretty straight forward. However, I must reiterate that you should have extensive electronic experience to undertake this, a small slip and you'll end up killing your entire system. There are ebooks, message boards, and video tutorials on how to fix xbox 360's so there is definitely some help out there if you're feeling adventurous.
A viable third option would be to send the console back to Microsoft. Microsoft will fix the console anytime within 3 years of purchase, so chances are you still are under warranty. If however you've cracked the case yourself, or had other work done on the console then you'll have no choice but to pay the price Microsoft demands. Currently they charge $140 if you send them an xbox 360 out of warranty.
As a fourth alternative, there are plenty of independent repair firms that will fix xbox 360's. These repairs start at around $69 and go to around $200. Make sure you look for a company with a good warranty, and that guarantees their work.
There are plenty of choices to fix your ailing xbox 360. It depends on which choice you choose on what your results may be. It's worth it though based upon the excellent quality of gaming we can get on the 360. Now if there were only a way to get a blueray drive on the 360.