In this video we demonstrate how you return your Xbox 360 to factor defaults. To confirm, this will return the Xbox 360 back to the same state as it was when you first purchased it. This process will remove all data and any setting changes you have made to the console, make sure you backup your game saves before you reset the console.
Returning the Xbox 360 back to factory defaults will not unlock a console that Microsoft has ban from its network, and it will not downgrade the firmware (operating system) to a pervious version. You will also need to disable parental controls before you can reset the console to factory default.