You just gotta love those secretive internal project code names.  Rumor has it (from a reliable source, no less) that Microsoft is hard at work on Project Falcon, a redesigned set of innards for the Xbox 360. 

Falcon is the name for the latest internal electronics in the Xbox 360. It will have an IBM microprocessor and an AMD/ATI graphics chip that are manufactured in a 65-nanometer production process. These are cost-reduced chips that do the same thing as their 90-nanometer predecessors, but they’re smaller.

With smaller chips, Microsoft gets a bunch of benefits. They won’t generate as much heat. So the risks of overheating — one of the main reasons behind Microsoft’s billion-dollar write-off for repairs and extended warranties — are much lower. The chips may also cost half of what it took to make them before because they use less material and fewer manufacturing steps to produce.

Putting aside the fact that a name like "Project Falcon" sounds more like a world domination scheme than a hardware redesign (How is Project Arcturus in the weather machine division doing these days?), it's good to see Microsoft doing something about the repeated incidents of Xbox hardware failure, first by fixing existing consoles with the new expanded warranty and next by redesigning the base hardware to solve the problem before it begins in future production runs.  Free design tip, Microsoft folks: just make sure that Project Falcon plays nice with surge protectors.