UPDATE: Major Nelson has just posted on his blog that the disc read error is not related to the upcoming firmware update, as reported. Apparently, this was caused by a previous update.
"Clarification time! The console replacement plan that is the subject of some of today’s headlines is related to a previous update, NOT the system update that has been in public beta and will be deployed shortly," Hryb wrote. "The new disc format that is part of the beta has been rigorously tested across all Xbox 360 models and there are no known compatibility issues."
That's good news, although I'm still a bit confused as to how an old update has caused this new problem.
ORIGINAL STORY: Back in March, Major Nelson announced via his blog that Microsoft was preparing to start another Xbox 360 Update Preview Program. Essentially, a number of Xbox users would have the chance to check out the upcoming firmware before everyone else, and in return, participants in this particular round were shipped a free copy of "Halo: Reach." Hyrb had mentioned that this test was going to "help [Microsoft] prepare for an updated Xbox 360 disc format."
Now, Microsoft has issued emails to some users claiming that the upcoming firmware may actually brick their Xbox 360.
According to Eurogamer, Microsoft will replace the affected consoles with a brand new Xbox 360 S system with a 250gb hard drive. The company stated that the issue affects a "very small" percentage of Xbox 360 owners, leaving their consoles unable to play retail game discs.
"This issue manifests itself a as a unique disc unreadable or disc unsupported error on the screen. We are also able to detect this issue over Xbox Live and are proactively reaching out to customers that may be impacted to replace their console," Microsoft stated.
It's fairly well known that Microsoft is moving towards the new XDG3 disc format, which allows for an additional 1gb of space on the disc. However, it's also been speculated that the firmware update is meant to combat piracy, placing increased restrictions into the system which effectively cause your Xbox 360 to check the media repeatedly during play. The idea is that this will thwart those using modified Xbox's with copied discs.
As reported by Digital Foundry this morning, hacker "commodore4eva" claims he's already found a workaround during the new firmware's beta. So...yeah.
Since Microsoft claims that this only affects a "small percentage" of users, I'm willing to bet that the issues are related to older, first generation Xbox 360's. If you think your console is affected, head over to www.xbox.com/support/contact to report the issue. Worst case, you'll end up with a brand spanking new Xbox.