So you are asking if your 360 breaks, you send it in and the one they send back breaks..what happens?
Well I don't have one, but here is my two cents since no one replied yet. Obviously if you bought a warranty from MS and it breaks they will send you one. Clearly! I GUESS if the one you get in it's replacement BREAKS..it'll also be replaceable. If you bought a 2 year warranty I believe you can have your 360 replaced at anytime within the 2 years. Hopefully it's not just ONE in 2 years (or 1 year, if you bought that instead)
But then again, if you just bought your 360 and it breaks.. and your replacement breaks and THAT replacement breaks, most likely life was never intended with you owning a 360, lol
My opinion, hopefully someone with a warranty will get around to answering it better for you