The Best Buy replacement warranty is actually pretty good for the 360, but you have to go to the store to get the full effect. If you call the number, they're gonna send you the shipping label, etc. like you had happen to you. If you go into the store, the store will call the phone number themselves to get the RMA number so they can send it back, but they will give you your replacement right then. Long story short, goto the store, don't call in.

As for the part about buying the new warranty, you don't have to buy a new replacement plan until the manufacturers warranty runs out. So after your first year (360 warranty is still 1 year, it's only 3 years for RRoD), if you used your replacement, the warranty is fulfilled and you're able to buy a new plan if you want.