High value of re-allocated sectors count

Hi

Sometime back i purchased a new assembled PC with the following configuration:

Quad core processor with Gigabyte E45 motherboard and 1 TB seagate HDD.

last week i installed Windows XP 64 bit in C drive. Windows has been freezing occasionally and then it had to be re-set. Then i installed Win 7 in new partition. While i was installing Win 7, it said that dont install the OS on C drive as the disk may fail. So i created a new drive and installed Win 7 on that. The freezing issue was there in Win 7 also. Then i noticed that HDD was being used like anything. The HDD LED would show it really busy doing something. I installed few SMART utilities to see and it said that value of re-allocated sectors count was 3990, which was way high and this disk might fail. Now even Win 7 has started showing messages about possible failure of the disk.

I googled for it and as far as i have understood, this is a hardware thing and the disk needs to be replaced. But just to make sure is there any possibility that its not a hardware issue, i mean the disk is ok and this is the result of some partitioning or something similar ?

Any other details required, please let me know.

Thanks
Amardeep