New hard drive needed and related questions. . .

Monday afternoon my wife called to ask what I had done to the computer, commenting that all she had was a black screen and a flashing cursor.  She could not get the computer into the setup or boot mode.   (I think she was too slow getting to the f2 and f12 keys.)  She did maanage to get to a screen at one point that indicated there was no boot device installed and that there was an IDE deivce failure.  I played around with it last night and did eventually get it to boot up and see files before it crashed again.  I played around some more this morning and did get into the diagnostics partition which indicated I had MANY bad sectors on my hard drive.  The computer is an Inspiron 531 with a dual core processor and 250W power supply(formerly) running Vista with 4G RAM, 160G hard drive (Dell indicates it was part# UX837 with a description of  "Hard Drive, 160G, S2, 7.2, 3.5 WD-HAWK.")  I have the Dell OS reinstall disk.  The optical drive appears fully functional at this point

My first question is, "do these observations indicate a bad hard disk?" 

If so, can I install another drive and reinstall Vista on it, and then somehow slave the old drive to it to recover any files?  Does my power supply limit the speed or size of the replacement drive?

If so, will I need parts or equipment beyond what I have in the computer now and am likely to get with a new hard drive?

I've never messed with a hard disk before, but have done memory and graphic cards, so if the questions seem foolish, it is out of ignorance.

Thanks in advance for any help!