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That notice is warning that there are more bad sectors on your hard drive than specs allow for. You can try defragging your drive but I would seriously be doing some backups of the operating system and any irreplacable data at this time - likely, you're going to need to replace the hard drive soon
I would get http://www.grc.com/sr/spinrite.htm before attempting a defrag. It's possible that a defrag would cause data corruption. It might be simpler to replace the hard drive.
First i would get - http://crystalmark.info/?lang=en to find out what is triggering the SMART error, post the problem here and get whatever data you need off the hard drive then it's up to you what to do with it but i would either get a diagnostic program from Western Digital's site or replace the drive. SpinRite might fix the immediate problem, but it won't fix any physical problems that might be present on the hard drive.