Microsoft spent $500mil (or so) on Rare, the largest family-friendly company in the history of gaming, sans Nintendo.
They've never made an M rated game, and exactly why Nintendo bought them. No other studio (again, sans Nintendo) has gone to that kind of length.
As stated, there's a wealth of great 'lil titles on XBLA that are very kid-friendly. Also, you have all the new great family-friendly RPGs with colorful characters, Idolmaster, lego star wars. Just check MS's family page for upcoming and current family-oriented titles.
I agree with possible solutions for warranty work like free XBLA stuff, but actually, I did get free MS points + gold membership for my box getting repaired. More would be better though :)
Back from the dead, I'm afraid.
