After many forums reads and even logging a support ticket with Microsoft (who still haven’t replied to my mail), I finally came across a forum post that explained how to fix it.

Here’s the really simple, step by step solution:

• Switch off the Xbox 360
• Unplug your network cable
• Switch on the Xbox 360
• Once at the Dashboard, go to the System blade on the right, and select the “Memory” option
• Select the harddrive option
• Select “Games” on the list
• Scroll down to almost at the bottom, looking for an entry called “Unknown Game”
• Press the Y button and select “Delete”
• Confirm the delete action
• Switch off the Xbox 360
• Plug the network cable back in
• Switch on the Xbox 360

All should be fine from here on out.
The problem seems to occur due to some fault while an XBLA game or demo is downloading, and doesn’t finish downloading for some reason. When the console tries to synchronise data between the console and Xbox Live, and try to finish downloading any unfinished downloads, the console freezes when trying to access the “Unknown Game”.

The game I was downloading in the background was the new XBLA title “War World“, not sure if that had anything to do with the console freezing in the first place. It *did* stop and start downloading several times while I was playing.

Original forum post here.