why do they overheat?
well, i have been working on a new heatsink for it and that didn't work out. basically there is no air inside a 360 - you have 2x 70mm fans running @ 5.6V and the way the fan shroud is designed approx 70% of the air will go to the cpu heatsink, which is a decent design.
the gpu is the problem. the distance between the main m/b and dvd-rom is ~20mm, after you put on the gpu itself and the cores sticking up your heatsink is only ~14.45mm high. so that is the problem - no air over the gpu. also the genius idea was to try to keep the system quiet so the fan, although independently regulated don't speed up until ~80C(180F), mix this in w/ a heatsink retaining mechanism that constantly pulls down on it hard enough to actually bend it in at least on incident and the supposed low or no lead solder and you have a recipe for a failing unit.
the unit, when working is a great piece of work, but ms f*cked up when they made the case. the new heatsink combo is said to possibly reduce the issue but nobody wants to open them up anymore now that they have a 3yr warranty so people that do have quite a bit of temp data can't compare to the normal stock unit.
the other issue is that you can't open it up to blow it out without voiding your warranty - tell me, how can you basically have a computer in a tiny case that you can't blow out? i blow my computers out every couple of months, so imagine a 360 running 10hrs a week over 1yr - imaging how much the heatsinks and fans are clogged w/ dust.
and as DaveSimmons states, the industry seems to claim 30% or so failure rate, but everywhere you read the amount seem to be around 50%.
for everybody that wants one i really hope they get this squared away and get a consultation w/ a thermal design firm and fix what they have, this issue is, imho, the main reason the wii is kicking it ass.