Completely WIPE your drive, use the Windows 7 installer to do it, it'll be the most reliable way. Attempt to split the drive down the middle and install Windows 7 to either one. If you have a vista or xp build, you can install that to the 2nd partition, but it'll probably be better if install Windows 7 AFTER the downlevel one.
I ran into a simliar issue, I had to partition, and install Windows 7, install xp, then run a repair with Windows 7 for it to setup the dual-booting.
I know I make it sound easy
but doing the above will prolong the life of your drive, and hopefully mark the bad sectors as un-usable so they won't get in the way.
Let us know how this goes