As far as I recall publishers will replace scratched disks for a nominal charge if you mail it in to them (and it's a big title) - or was it Microsoft? At launch there were a ton of complaints about eaten discs and big circular scratches.

There are services almost everywhere that'll swap out the drive for you, and the replacement is usually pretty cheap. Sounds like it's just your drive giving you grief. Either that or suck it up and spring for a new one - I've had to buy 2 extras myself

Re: Return policy, I've had a Future Shop employee send me home to get my console when I was chatting with him telling him about my dead 360, and he swapped one out for me on the spot. Granted I'd bought a lot of computer stuff there off him that week (like 4 laptops for a client) so there might have been something fishy but I wasn't one to complain.