This problem is often called the Red ring of Death.
It's actually very common and is caused by a hardware malfunction that causes the system to overheat.
There are 2 ways to fix this problem: 1) Send it to Microsoft (if your warranty is expired it will cost $110)
2) Fix it at home by taking the system apart and repairing the malfunction. This can be daunting, but is actually easier than it sounds. I recommend having a look at these 2 sites:
http://threeredlightsonxbox360.com
http://www.squidoo.com/xbox360-red-ring-of-death-fix
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