The problem is that the cooling design of the 360 doesn't hold up. The cooling of the CPU was well done, with a heat pipe to draw the heat away from the chip (and accordingly, away from the mainboard). The problem is that the GPU and its low-profile heatsink sit under the DVD drive, and are given a very narrow channel for air to be pulled acrosss the heatsink by the fans. When the GPU heats up enough, not only does it reflow the solder in the ball grid array slightly, it can cause the entire mainboard to flex - a phenomenon largely caused by the X-shaped brackets that hold the heatsinks on under the mainboard. They hold the heatsinks down to the chips with a tension fit that presses up directly underneath those chips.

So when the system gets too hot, the combination of loosened solder with a mainboard that flexes from heat causes the GPU or CPU to actually break its connection from the board - resulting in the 3 red lights and secondary error code 0102 (the "unknown hardware error" code).