Ongoing Xbox 360 hardware woes have pushed Microsoft toward extending warranty coverage to three years. Oh, and they’re not selling enough either.

Microsoft is facing over $1 billion worth of charges to repair millions of Xbox 360 consoles, according to Reuters this morning. And so, ever mindful of consumer reaction, Microsoft is not only extending the warranty of Xbox 360 to three years, the company has also issued a statement that it will reimburse customers for repair costs incurred owing to the red flashing lights – a.k.a. the Ring of Death.

Reuters also highlight that Microsoft has fallen short of Xbox 360 sales predictions this year. It was forecast that 12 million (reduced from 15 million) Xbox 360s would ship before end of June, but the figure ended up 11.6 million according to an analysts’ conference call with Chief Financial Officer Chris Liddell.

It’s the kind of news Microsoft clearly wants out of the way before E3 next week, when the only fireworks Xbox 360 needs is a line-up of PS3-conquering games. In the blue corner we have Sony struggling to raise interest in PS3 and PSP, but rumours are already circulating that a price drop and new PSP are imminent.