Couldn't you try to just wipe the drive, write a new MBR (with something like Parted Magic) and reinstall the disk? I would be highly surprised if there's anything physically wrong with the hard drive. Most likely just a corrupted file system.
This seems like a problem that is potentially easily fixed if wiping all files is an option.
Well, I really wanted to get my stuff back and not have to re-download and install everything again, but I think you are right that nothing is physically wrong with the drive.