It is actually 4 red lights vibrasphere,we had two of ours do that and yes Microsoft do fix them for free if it is still under warrantly,they even send a courier to pick it up from your home. The newer models allegedly don't often have that problem,whereas the first couple of batches it was very common.
There a variations of the red rings of death, its typically 3 red lights.
It would cost microsoft alot more to make a new versions of the xbox, so to be cheaper theyll repair it for free.
It is supposed to be a susidiary company of sony's was to have made the 'chip' in the xbox that makes the fault. Alleged sabotage. But ofcourse that is just speculation.