I would recommend creating a Hirens Boot CD
and utilize some of the options available to attempt to resolve your issue in relation to the HDD. You've pretty much figured out on your own that the HDD is to blame.
The HP system diagnostics are spot on when it comes to detecting failures. Like scout_03 mentioned, Recuva is one of the better programs (free at that) to try and salvage your data. Just hope that it's not a spindle failing in the hard drive or the only method to get anything off at that point would be to send it off and have someone remove the data by taking the hard drive apart in a clean room and scraping the actual heads.