Replace the hard drive with a new one; the present one is failing.

Yes, assuming you want the system to operate properly.

Assuming the system doesn't operate properly now, you could try formatting (DO NOT use the quick format) and reloading Windows, but it's a long process and will ultimately crash again, since the drive is faulty.

Just as you wouldn't build a new house on a crumbling foundation, I suggest replacing the drive before doing the reload.