Regardless of whether it should be necessary or not, noone would have these problems if they picked up an extended warranty. The $50-60 I spent when I bought my 360 originally was the best $50-60 ever spent. When mine failed, I swapped it out at Best Buy, got a new unit (this time with HDMI) and paid $7 for another 2 year warranty.
I think a recall would have been good, but how long would that take to get everyone a new unit? Being realistic, I think a recall would have been very difficult to do and in many cases unnecessary.
Extending the warranty to 3 years was the right thing to do. Gaming is not a necessity, so it stands to reason if someone is out their console for a few weeks, its not the end of the world. I think MS is doing what they can and need to in order to resolve the issue - so long as units they are replacing are not failing.