When the console launched, Microsoft’s official failure rate for the console was 3% - 5%. However, despite further tests being done, Microsoft did not actually send out a new failure rate.
However, on July the 5th, Microsoft decided to extend the standard one-year warranty of their Xbox consoles to three years, but you could only claim in this three year period if your Xbox had the Red Ring of Death error. This is a huge lifesaver for everyone, knowing they can get their console fixed for free, when otherwise it would cost you over $150.
Microsoft was actually interviewed on the RROD issue, and an Xbox console was taken apart. The reasons that they found for the faults, from the interview and the console was that it was due to system design, parts supply, material reliability and manufacturing issues - As well as the Xbox not being very tolerable to faults.
These faults were alleged to be the end result of bad decisions in Microsoft, mainly to help keep costs down. Another source claimed that in one of the test runs, only 32% of the Xbox's tested ran properly. That means that 68 out of every 100 units would get the error - A HUGE failure rate!