What sounds like urban myth, might actually be steeped in truth. Wrapping a 360 in a towel may mimic the affects of the heat gun fix. That is, apparently the red ring of doom is frequently an indication of a faulty ball grid array (BGA), used to solder the GPU chip. The towel wrap holds in the console's excess heat, likely melting the BGA and re-establishing a temporary connection between the GPU and circuit board. Of course, the heat will also damage numerous plastic parts within the console. Not recommended.
[Via Engadget]