Smart test Failure on HD. What do these results mean?

The only thing that failed is "Re-allocated sector count: results are value 138, threshold 140, worst 138.

What does this mean to me?

I have noticed my laptop heating up more than normal for a couple of weeks. Is this bad news?

Thanks,
Bill

A smart failure tends to mean ...well failure is pretty imminent you probably should backup data now while it's still booting. It could hold out for as long as a year in that state, or it could die completely tomorrow.
From my own experience that's pretty much it.
A SMART failure always means some key component in the drive is on it's way out.

Thanks. That's what I thought. I have a 120 GB SSD drive on the way, as well as a 320GB Hitachi 7200. I must decide which one to use and send the other one back. I've never had an SSD, and probably will go with that. IT's been a long time since I updated a laptop. What is the simplest way to get my current HD data on my new SSD? I plan to do this myself, but I am a little rusty on the procedure. All help is appreciated.
Thanks,
Bill

How much backup are we talking?
Well it's tricky normally I would just say buy a 10 dollar enclosure and transfer when the time comes but we have no idea how long this drive is going to last.
You may want to just start with flash drives and move to dvd's after that.
From the sound of it you don't have an external drive floating around.

I have already done an Easy Tranfer files and setting backup to an external drive. Do you think installing the new SSD, then loading the W7 OS and all software programs, then doing an easy transfer of files and settings from my external where I saved the transfer info from my current laptop would be the simplest way. Can I put the OS on the new SSD the same way I would a regular HD?

Part 2

Or would it be better to just backup my files to an external HD, then do a easy transfer of settings only, then load my files on the new HD.

Personally I have always kept my 'keeper' files on a separate drive.
This is most easily done by just moving them there and organizing them there yourself.
Though we have a massive number of tutorials here covering half a dozen ways to go about this.
You may want to browse through the tutorial section real quick.
http://www.sevenforums.com/tutorials/257-windows-7-tutorial-index.html

there's a link to the index, though the normal navigation method is probably easier to use.