SMART Short Self Test FAILED & Targeted Read Test FAILED....

I am having problem with TEST FAILS on my Dell PC - STUDIO XPS with a warning: Your drive indicates that a failure may be imminent.  Back up all important files and Replace your drive. 

System Type:   Studio XPS 435t / 9000

The information I got from the scans are shown below.  My question is this:  Do I really need to replace my hard drive asap?  I still have lots of disc space left, not nearly full.  The message in red below scares the hell outta me!  (Your drive indicates that a failure may be imminent.  Back up all important files and Replace your drive.)  Any help or advice would be greatly appreciated since I am no longer covered by a warranty.  I bought this in 2010/2011.  

Thanks!   

Deborah N.                                        :

Hard Drive Failed 5/27/13

Hard Drive Sector Error ST31000528AS 5/23/13  (warning)

Create Password Reset Disk (warning) 5/28/13

Schedule Hardward Scan (fail) 5/23/13

Hardware Sector Error ST31000528AS

Smart Short Self Test (Failed) WHD16-4LN

Run Scan: 6/5/13

Targeted Read Test (FAILED)  ST31000528AS

Helpful hings: Visit “Support” to access additional Dell resources

Smart Short Self Test (FAILED)  WHD16-4LN

Helpful Hints:  Your drive indicates that a failure may be imminent.  Back up all important files and Replace your drive. 

SEARCH “Help and Support Center” – Hard Drive

Visit “Support” to access additional Dell resources