Talk to MS about this before you do anything with the retailer. Since MS extended the warranty to three years, they should be able to tell you how to arrange it with the retailer. A friend of mine in a similar situation mentioned MS is reimburing people who purchased extended warranties, or making alternate arrangments. He got his at Costco with the extended warranty, and when he spoke to them about replacing it they extended his warranty further due to his extended warranty purchase. His new Xbox360 is covered for 6 years.
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