Microsoft has confirmed reports that the imminent new Xbox 360 firmware update is incompatible with "a very small number of consoles", with the company intending to replace some older machines with newer models.
"Following a recent update to our system software, we have become aware of an issue that is preventing a very small number of Xbox 360 owners from playing retail game discs," said Microsoft
"This issue manifests itself a as a unique 'disc unreadable' or 'disc unsupported' error on the screen. We are also able to detect this issue over Xbox Live and are proactively reaching out to customers that may be impacted to replace their console."
Microsoft is encouraging customers who suffer from the problem to contact them via the Xbox.com website, so that a replacement can be arranged.
The issue relates to Microsoft's plan to increase the storage space on a DVD by an extra 1GB - by reducing a DVD-Video partition containing anti-piracy security.
DigitalFoundry's Richard Leadbetter has suggested that the problems arise from the wide variety of different DVD drives that have been used with the Xbox 360 over the course of its production, some of which may not be able to receive a direct flash update.
The new firmware will be the first to rewrite the drive itself - resulting in the need to offer replacement consoles in some cases.
Considering the costs involved the primary purpose behind the update is not the extra storage space but a suite of new anti-piracy tools, meant to prevent hacking of the console and the running of homebrew or pirated software.
According to DigitalFoundry sources new APIs are also being made available to developers, which perform additional scans of the DVD during gameplay and not just when booting up.
Nevertheless, some reports suggest that the security measures have already been overcome, as a result of backwards engineering from beta test software.