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The Xbox 360 does not like to be moved when playing a disk some of the mechanics may have misaligned or slightly out of sync this may be reason the DVD drive is making those sounds.
I strongly recommend you remove any visible dust from the 360 especially the sides and air vent holes using a vacuum cleaner. Once youve cleaned it place it horizontal (never on carpet) on a flat surface well ventilated away from other devices that generate a lot of heat.
As for the 'shredding sound', place in **** game into the 360 when it starts to make those sounds again gently tap the 360 on top (where the DVD drive is) until it stops making that sound. This doesnt always work but has for me and many others.
My experience tells me that dust can build up not only inside the 360 but also the drive itself which can lead disc read errors and the sounds and you mentioned.
Remember DUST and HEAT is the 360's biggest enemy and can cause RROD, 1 Red Light Problem, and disk errors.
to format your hard drive go to the dashboard then system settings then memory then click into hard drive u will c device options on the bottom of the screen press y to go into it in there u will c the option to format. it sounds like your loosing the update you dont get updates every day that would be crazy you could try a friens hard drive and c if it holds the update
the drive has been dropped or kicked while in the horizontal position and the laser head is bent out of place and is touching the disk.
this will cause all disks played in the unit to be damaged and may render them unusable in any system.
Contact MS to begin a repair