Windows failed to start - Toshiba Satellite L655

To start, I left my laptop off for two days while away on vacation. I return home and attempt to load it and receive the windows error message:
"Windows failed to start. A recent hardware or software change might be the cause."
I am left with 2 options:
1. to boot start windows boot manager
2. to load windows normally

When I try option 1, at the bottom of screen there's a bar that says loading windows file and then the screen goes to a black screen with an arrow, never to load--even after a substantial amount of time (hours)
When I try option 2, it goes to the windows logo screen for a couple of minutes and then returns to the error message screen.

I have a Toshiba Satellite L655-S115
Windows 7 64 bit
My 1 year warranty on the laptop just ended, less than a month ago and when contacting Toshiba they note this. Upon a 2 minute conversation I was told that the harddrive crashed and needs to be replaced as well as windows OS ($200).
I just don't understand what could have happened because prior to leaving for vacation, windows was functioning no problem.
My laptop is not making any weird sounds. I just want to be sure their solution is necessary or is there any other solutions I could try before dishing out $200+ for this $600 computer. Also know any strategies getting around out of date warranty when right outside, within weeks of the warranty period.

I don't know if you got this settled, but it sounds like the hard drive might be okay if you can re-format and re-load Windows fresh

I actually have not--been using a friend's computer in the meantime.
What would I need to do to re-format and re-install windows?

Are the restore options still on the loading screen when the computer starts? Something like "press F? to choose the restore function". If not, You will need a Windows 7 install disc to boot from