This may or may not be useful -- read at your own risk.

The Xbox 360 is notorious for the RROD (Red Ring of Death) problem. Apparently overheating causes the motherboard to warp out of shape until it finally just doesn't work.

Me, I was dealing with overheating problems while some of you BYONDers were still in diapers. I had a Commodore 64 in the mid-80's and, after a year or two of faithful service, the power supply started overheating regularly. I've been paranoid about overheating ever since then.

So, when I got my Xbox 360, I set it up in the "flat" (horizontal) configuration. I put it on a stand next to the TV rather than stacking it on a confined shelf under the TV. But that's not all I did: I also took two PS2 DVD cases and set them underneath the edges of the 360. So underneath my 360 there's a half-inch of open air that most 360's don't get.

As of this writing, I've had my 360 since May 2006, about 8 months after the 360's release ( Gughunter?command=view_post&post=12442). It still works fine and I'm sure I've accumulated at least 1000 hours of gameplay time on it. Is its longevity due to the extra half-inch of airflow? I don't know -- but at the very least, I don't think it hurts.

If you're already suffering the Red Ring of Death, you may want to Google "360 Towel Trick." It's hard to judge whether this is effective or an urban legend, but it could be worth a try. And don't forget Microsoft offers a 3-year warranty against the RROD.

Update: I watched a Towel Trick video on YouTube and the guy had his 360 sitting ON A CARPETED FLOOR. Whatever else you may do to the 360 -- or any device that may be liable to overheat -- setting it on carpet is BAD!! NO COOKIE FOR YOU

Further update: I posted twice in the same night so my wonderful roundup of October's open-world games ( Gughunter?command=view_post&post=48725) got bumped off the Members page. If you like open-world games, check it out.
Although I don't own a 360, I too infact saw a towel trick video a while back and its true I believe; think someone from IGN did it... As for stopping it from overheating, would having it vertical help at all since it has vents underneath(but now that I think about it, I heard something about 360s scratching discs, idk)? Also, I guess those air coolers you can buy for them work too(haven't heard much about them and they make them for every system) but I guess your method is much more cost effective.
Towel Trick = Bad Idea. I admit I don't know much about it, seeing as I've only red ringed from a badly connected cable, but from what I understand the goal is to over-heat it into resetting a temperature measuring device on the motherboard. I'm not 100% certain seeing as nobody ever really goes into detail on how it works.

That said I've never encountered a veteran XBOX 360 modder who didn't shoot the idea down as a complete myth (and a somewhat dangerous one at that).

At the end of the day, even if you've done something really dumb like putting right next to a heating duct, Microsoft will fix it.
I never scratched a disc with my 360 standing upright but I did get a lot of 'disc read errors'. They were a real pain in the butt but they didn't do any damage to the disc itself.
Most reports of consoles scratching discs come from people who either just brought the console or people who switched from upright to horizontal while it was turned on/a disc was in it.

Also, I guess those air coolers you can buy for them work too

Things like the Intercooler are ok but they tend to be really noisy (and the 360 isn't exactly a stealth console to begin with).
Everyone I know who brought one ended up taking it off after a few weeks. Which is strange because they aren't that noisy. It just seems people don't like having them on their consoles.

I actually do the really lazy thing of just having a fan pointed at the entertainment unit. Seems to keep the consoles cooler than an Intercooler type fan and it also stops the hot air from building up around the consoles.
The towel trick doesn't work that well. If you have a RROD box with a warranty that ran out you might want to try the x-clamp fix. It involves taking apart your xbox, putting a power drill to it, and then purposely overheating it. It's not a surefire fix, but they've apparently had a 90%+ success rate with it. ring_of_light_x-clamp_fix.htm

As for the disc scratching issue. The earlier versions of the xbox do in fact scratch the discs because of the way the drives were designed, and only occurs if something moves the console. And yes, there's a fix for this as well. Refurbishing-the-HL-Xbox-360-DVD-Drive.htm
I got my XBox 360 the very first day it came out. Play around with it at least five hours a day, and I leave it on almost 24/7. I've never had any problems with overheating or anything like that, so far. :-\
I also don't have any problems with overheating.

But heck, I'm Canadian, so my igloo keeps it cold.
Last year my Xbox got the RROD and I used the towel trick close to 20 times.

Worked everytime, though I had to do this every 1-2 days.

Then I finally sent it in.