Good on MS for doing this. In all honesty, even if they were inevitably going to face a huge lawsuit, how many companies do we know of that would have rather faced the lawsuit and settle quietly than actually admit they were wrong in the first place? It takes a huge amount of guts to do that and for such a massive company, it was never an easy task. You have to give credit where credit is due.
I've had my 360 since just after launch, and it is still ok (touch wood) but it was a concern that if my 360 broke that it would be costly to repair / replace. I don't believe in extended warranties, waste of time and money if you ask me, but this is a nice gesture from MS and it certainly wasn't expected of them.
Again, nice one MS for showing face and proving you really are just as good as you say you are.