Reportedly the error is either related to the AV cable, or the more fatal occurrence of a burnt out scaler chip or even the death of the console’s GPU. In any case, Microsoft claims it has determined that “the E74 error message can indicate the general hardware failure that is associated with three flashing red lights error on the console,” and not only it will extend the three year warranty to cover this flaw but should provide those who paid for E74 repairs in the past with a refund in the next 4 to 12 weeks.
If you don't automatically receive this refund by July 1, 2009, you'll need to claim one through xbox.com/support before November 1, 2009. Good to see Microsoft owning up to the problem and supporting their customers. Yet on the other hand, it is hard to justify the Xbox 360’s continued reliability issues and all this will likely hurt them in the next round of the console wars.
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