If I'm right in thinking, the towel trick is when your 360 overheats, you wrap it in a towel and leave it for half an hour or so. This makes it overheat a lot and makes the welds between certain hardware become loose. You then let it cool and the joins go back to their original state and no more red light.
Anyway, this guy on Youtube explains how to do it.
Anyway, this guy on Youtube explains how to do it.