The point is not how fast MS will repair it, though. The point is the OP's paid for a service that he could have used himself for free (certainly as far as 3 red lights are concerned).
I'm

annoyed to hear this, actually, because I got my latest elite from Gamestation (who are now owned by GAME), and took out a similar extended policy (actually, it'll be the same one, it's from Allianz Cornhill as well) so as specifically to avoid sending the console back to MS in the second year if necessary.
I'd fight this one, and hard. After all, what exactly is their "service" offering for the money? They'll argue that it covers accidental damage and other mechanical errors besides 3RROD, but I'm sure you took this policy out (as I did) after being assured that it covered everything, and certainly did not do so in the belief that 3RROD were just sent back to MS for repair.
You could argue, as I did to get a refund out of Argos, that to send it to GAME (or GameCare) and for them to then send it on to MS on your behalf would take longer than if you were to send it to MS yourself. This means your options are to waive your rights under SoGA, or endure significant inconvenience by going down their route. Simply not good enough, and a potential case for legal recourse.
Wind up the angry letter writing machine, and get cracking!