Supernostro pointed out an article at IGN suggesting that in Q1 of 2007, the CPU in the Xbox 360 will get an upgrade that will make the console more reliable:

Chartered Semiconductor will update the 360 CPU to a 65nm process, the current state-of-the-art in chip manufacturing techniques. The new Xbox 360 CPUs will benefit from lower power consumption, and thus much lower operating heat. The change will likely have a dramatic impact upon Xbox 360 reliability, as the console, especially the first batch of units manufactured before January 2006, has something of a reputation for being prone to hardware failure and the dreaded "Red Eye of Death."

Of course, I'm sure Microsoft would rather that hordes of potential buyers don't skip out on buying a 360 this holiday, assuming they haven't already, so don't be surprised if this upgrade either gets moved up, or denied altogether.