Updated read below:
Just by co-incidence I got to this newspaper story. It's written in Dutch, but I'll provide a short summary.
It's basically a story about a 11 year old boy (now 13) who saved his cash to buy a 360. After suffering 3 console deaths, he got his 4th console which scratched discs. The article talks about the professional testing performed by Kassa which demonstrated the 360 untouched can scratch discs even in laboratory conditions (playing sessions were all caught on tape as evidence). Thousands of Dutch consumers have filed their complaints with consumer protection services regarding the disc scratching issues. Microsoft still rejects any responsibility claiming this to be impossible while addressing consumers, despite previously informing Kassa they will take care of the damages.
The boy's 360 got "repaired", but instead of replacing the broken DVD drive they replaced the motherboard (most common issue with the 360 appears to be RRoD). Again in contact with Microsoft (formal letter), they send him another replacement console which also scratches discs. The boy demands a functioning 360 and replacements for 10 games which have been destroyed, Microsoft rejected stating it's impossible 360s scratch discs in normal situations. He gives up hope and now wants his money back. Son and his dad decide to sue Microsoft, Microsoft calls and promises a refund, but this still hasn't happened.
More people have sued companies and threatened to do so with regard to the 360's problems here in the Netherlands, but usually the retailer will come into action and helps out the customer by replacing consoles and destroyed discs. According to Dutch law a retailer is also liable for selling faulty products and has to deal with this internally.
Dutch consumer protection agency Kassa sues Microsoft on behalf of thousands of Dutch consumers. Due to an ongoing lawsuit in the United States, internal Microsoft emails revealed that Microsoft already knew about disc scratching issues before release in 2005.
Kassa demonstrated earlier during tests 360s could scratch discs even in super steady laboratory conditions, all recorded on tape.
Having watched the program, a summary: The boy's dad who sued Microsoft as talked about in the original post apparently got a complete refund on bought console, games and lawsuit costs. Others who didn't go that far were treated badly, one of the guys interviewed bought his 360 last November and already 4 games were scratched.
Some snips from US Microsoft employee testimonials:
"This is information we as a team, optical disc drive team, knew about."
"360 was routinely scratching discs"
They put in drives known to have the same problems when doing repairs. Just to give customers the idea they get a new device (paying 100 dollars!).
"Just to give the customer a new optical drive, so that from a customer perspective they're getting a new device and that improves customer satisfaction"
Kassa is in co-operation with various European consumer agencies to address these problems for the whole of the EU. Like in the US, together they stand stronger, European Commissioner for Consumer Protection Meglena Kuneva outed her support and approval.