I'm guessing it's not under warranty any more? I had the same problem with my first one. It steadily got worse and worse until the disc drive would no longer recognize xbox game discs. If your 1 year warranty is still active, send it in. Actually, even if it isn't, give 'em a call, see how much the repair might be.
If not, I'd suggest waiting until September 7, when they're supposed to drop the price of all the models. The newer models that are out now come with the more efficient processors, and I think they come with an HDMI output as well. I don't think any other big changes are coming in the near future.
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