The hard drive has failed. You can try to boot from the installation disk and do an OS repair. This will not lose you data. If you do an OS reinstall, you will lose everything.

Even if you get a new drive (is it still under warranty?), you may not be able to recover the data using an external drive enclosure. If it's under warranty, you will be able to get a repalcement drive containing the OS. If not, you will need to buy a drive and install the OS from the install disk. Then buy the external drive enclosure (not expensive), install the old drive and try to recover your files. If it won't cooperate, some people have been successful by freezing the drive for a while, thawing and trying to recover. Using a commercial data recovery company to get your info off the drive will cost as much as a new computer.

You could Google on the problem to see if others have found other ways to try a repair.

This is a dangerous operation on a failing drive - be sure you've nothing on the drive you can't afford to lose before you try it.

Otherwise, remove the drive, mount it in an external case and attach it to a working system by USB and BACK UP what you can, before going further.

Thanks for the info.  Just to be sure I know what to do....I insert my installation disk with the unit off, then turn the unit on and boot up but look for "repair" and not reinstall, correct? I think it would be worth a try. 

Ok, this is a question from the inexperienced.... I have another laptop sitting right beside the one that crashed.  This system is using Windows Vista, and the other system that crashed  is using Windows XP.  Can I attatch the failed drive to the working system via the external case and USB?  If so, how do I remove the hard drive from my failed system.  This is a job for my husband, since I am not mechanical at all.  He's the engineer :)

thanks for the great info so far.

You can do that, yes.  What model system has the failing drive in it?

I have the Inspiron E1505.  It is a 2006 and is out of warranty.  It has a 60 GB 5400RPM SATA Hard drive in it.  What exactly do I need to buy at Radio Shack? (or equivalent online store?)

Yes.

You may have to start by doing F12 at the Dell boot screen to set the dvd drive to boot first instead of the hard drive.

I have this same problem. I am trying to reinstall Windows xp and the error message keeps stopping the process. I don't care if I lose my data, just want to get wndow's up and running. Any suggestions??

Thanks Denise

If you haven't replaced the hard drive with a new one, do that FIRST, and THEN reinstall Windows - no sense building a new house on a cracked foundation.

There is no permanent fix other than a replacement drive, no.  There are utilities provided by drive makers for mapping out bad sectors - but they'll continue to propagate and more will pop up -- could be five minutes or five days - or five months - after you invest time in reinstalling.

Replace the drive.