S.M.A.R.T. reports hard disk is failing

I have an inspiron 1520 laptop and it says that SMART reports that the hard drive may soon fail.

"Error:Reallocated Sector Count has reached its threshold. Current value is 135 and threshold is 140.
According to S.M.A.R.T. specifications, your hard disk is failing and needs to be immediately replaced. Backup your data as soon as possible. "

1. Is this because of physical damage?
2. If I replace it with a new one, will I have to re-install windows xp?

What will I do? This computer doesn't come with a XP CD, it just gives me option for system restore or dell restore back to factory settings...
 
When a failure is anticipated by S.M.A.R.T., the drive should be replaced.
You will need to re-install you operating system.

you can contact dell and they maybe be able to ship you a set of disks.
 
Before contacting Dell, you could attempt to replace the disk and try a system restore or reset to factory settings. Couldn't hurt IMHO.
 
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