SMART test failure

This is related to a question that I posted elsewhere about Windows freezing up on my desktop PC:

I have run PC Help Tools' Hardware Diagnostic, Western Digital's Data Lifeguard, and Advanced System Care to check my hard drive. They found an error with my primary hard drive.

When I run PC Help Tools, I get an error code of HD 521-2W when I ran a SMART short self-test.

When I run Western Digital's Data Lifeguard Quick Test, I get the following error message: "Quick Test on drive 1 did not complete. Status Code=07 (Failed read test element, Failure Checkpoint =65 (Error Log Test). SMART self-test did not complete on drive 1."

Is this a serious problem, or something that is minor in nature?

And would it cause a problem with Windows locking up and system restore points disappearing after the PC boots up?

My PC:
HP Media Center m8120n desktop.
2.4 Ghz Quad Core CPU. 3 GB RAM.
Windows Vista Home Premium, SP2, 32-bit
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More about smart test failure
  1. Can you post a screenshot of HDTune Health tab? It can be downloaded from:
  2. If it can't even pass WD's diagnostics I'd RMA it if it is still under warranty.
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