There was the possibility of people outside E3 protesting and creating a scene about the 360's failure rate.

Basically what others have already said... E3 is about generating extreme hype and excitement about upcoming games for the 360. They don't want that excitement diluted by controversy over high failure rates, even if they have good news on that subject.

blind xbot.

The new warranty will represent a $1 billion pre-tax charge on Microsoft's earnings for the year's final quarter. This marks a notable setback for the company's Entertainment & Devices division, who reported a $315 million operating loss in the third quarter. So why do people think this is a good thing for Micrsoft? Also i would not look for a price cut from them anytime soon.

Announcing that you increase the warranty in your defective product doesnt make very good PR in an event like the e3 .You cant start a speech with something like "Now ,what everybody wants ! Answering the reclaims of millions of X360 users whose X360 broke in front of their eyes here we have ....the 3 year warranty !" ....it just would be bad press .

they will probably do a price cut.
if this won`t help. probably will stop producing x360, like sega dit with dreamcast.

for 6 years m$ gaming devision is not making profit, only losses around 5-6 billions $.

 haha dude im a nintendo fan, but atleast i'm not biased like you are

Update: According to FOX News (10pm TV News Report), an estimated 2.5 million Xbox 360s have been reported defective. This could be the reason behind the 1.1 Billion $ fix and warranty extension.

It's not exactly a hugely positive story for Microsoft...it's basically them fixing a problem of their making.  Don't forget, although the machines only come with 1 year warranty normally....you, by law, can still demand a replacement or in fact your money back...if it breaks down within a reasonable time...and 2-3 years is a reasonable time.  Thats why the whole warranties rubbish is a con....you're paying for something that you can realistically get for nothing.

While extending the warrenty is good for the customer base, talking about hardware failures isn't really something you want to highlight at the E3 conference.

 It sounds like Microsoft has taken a page from the Nintendo play book:

(from Joystiq.com)

Apt timing for Nintendo's pre-E3 downers

Posted Jul 5th 2007 2:14PM by Ross Miller
Filed under: Nintendo DS, Nintendo Wii, Business

On Tuesday, we saw two announcements from Nintendo that we're sure caused a handful of fanboys to tear up: no online Metroid and no playable Smash Bros at E3. Why did the House of Mario decide to break hearts just one week before their E3 press briefing? It's just good business, as observed by Newsweek's N'Gai Croal.

Nintendo PR revealed their "damage control playbook" last year, Croal said, when they announced the then-distressing final name for the Revolution, Wii, just 12 days before E3 2006. (Check the linked post and its 593 comments for a look back at the announcement.) Of course, the oft-teased title change did little to waver its hype and Nintendo is widely regarded as having a stellar E3 showing that year.

Sony, as Croal noted, gave their bad news at the very end -- namely, the $600 price tag. And with it being their final note, they left a sour taste in all gamers' mouth. With Nintendo's bad news out of the way this year (hopefully), Iwata and company can end on a high note. We've illustrated this phenomenon on a chart above. (Note: all values are approximate)