Hard Drive replacement guidance

This is my first posting on this forum, so please bear with me. I purchased my laptop from a small pc repair shop for a low price. About four months later, my Toshiba mk3265gsx hard drive began sending error messages along the lines of disk failure and back up your data and don't turn the computer on again until you replace your hard drive (I have used it many times since I saw that - my bad) I began troubleshooting and researching and found that this particular hard drive is quite terrible and if it doesn't give out this week (or while I'm sending this post) it will soon.

My laptop came with Windows 7 Home Premium 32 bit already installed. The pc repair guy has a license from Microsoft to put the OS on any laptop he refurbishes, but he cannot distribute discs. I called him up yesterday and he said I need to pay $89 after I replace the hard drive if I want to continue to use win7. The worst thing is, if I paid this guy I wouldn't have any discs to reinstall windows still.

I ordered a Western Digital 320 GB Mobile Hard Drive: 2.5 Inch, 7200 RPM, SATA II, 16 MB Cache - an obvious upgrade and I'd like to use some of your tutorials on this forum to get Win7 on this new drive. The bottom of my laptop has a product key so will I need to buy this software again?

Additionally, I tried to save an image of my system on my back up external drive but this error message popped up saying that my drive isn't formatted with NTFS. I'm not sure what that means, but can I format my hard drive with that?

My plan is now to make sure my product code is good with some freeware I saw on another thread, buy an 8GB jump drive and hopefully install Win7 on that, replace the hard drive and boot my system with the jump drive. In the meantime, I might just install Ubuntu and partition the new hard drive until I can figure this out.

Any advice? I'm not sure if I know what I'm doing here. And yes, I did back everything up.

Thank you!

I posted earlier and one of your senior posters told me to run this tool before I proceeded with my original problem. Thank you.

Code:

Diagnostic Report (1.9.0027.0):
-----------------------------------------
Windows Validation Data-->

Validation Code: 0
Cached Online Validation Code: 0x0
Windows Product Key: *****-*****-WJ2H8-R6B6D-7QJB7
Windows Product Key Hash: ckKNc+BBPDWmo1LUlOkraNjlQ34=
Windows Product ID: 00359-OEM-8992687-00006
Windows Product ID Type: 2
Windows License Type: OEM SLP
Windows OS version: 6.1.7601.2.00010300.1.0.003
ID: {C5A2EA94-E53D-4992-89B9-6ADCB8FFFEF5}(1)
Is Admin: Yes
TestCab: 0x0
LegitcheckControl ActiveX: N/A, hr = 0x80070002
Signed By: N/A, hr = 0x80070002
Product Name: Windows 7 Home Premium
Architecture: 0x00000000
Build lab: 7601.win7sp1_gdr.130828-1532
TTS Error: 
Validation Diagnostic: 
Resolution Status: N/A

Vista WgaER Data-->
ThreatID(s): N/A, hr = 0x80070002
Version: N/A, hr = 0x80070002

Windows XP Notifications Data-->
Cached Result: N/A, hr = 0x80070002
File Exists: No
Version: N/A, hr = 0x80070002
WgaTray.exe Signed By: N/A, hr = 0x80070002
WgaLogon.dll Signed By: N/A, hr = 0x80070002

OGA Notifications Data-->
Cached Result: N/A, hr = 0x80070002
Version: N/A, hr = 0x80070002
OGAExec.exe Signed By: N/A, hr = 0x80070002
OGAAddin.dll Signed By: N/A, hr = 0x80070002

OGA Data-->
Office Status: 109 N/A
OGA Version: N/A, 0x80070002
Signed By: N/A, hr = 0x80070002
Office Diagnostics: 025D1FF3-364-80041010_025D1FF3-229-80041010_025D1FF3-230-1_025D1FF3-517-80040154_025D1FF3-237-80040154_025D1FF3-238-2_025D1FF3-244-80070002_025D1FF3-258-3

Browser Data-->
Proxy settings: N/A
User Agent: Mozilla/4.0 (compatible; MSIE 8.0; Win32)
Default Browser: C:\Program Files\Internet Explorer\iexplore.exe
Download signed ActiveX controls: Prompt
Download unsigned ActiveX controls: Disabled
Run ActiveX controls and plug-ins: Allowed
Initialize and script ActiveX controls not marked as safe: Disabled
Allow scripting of Internet Explorer Webbrowser control: Disabled
Active scripting: Allowed
Script ActiveX controls marked as safe for scripting: Allowed

File Scan Data-->

Other data-->
Office Details: <GenuineResults><MachineData><UGUID>{C5A2EA94-E53D-4992-89B9-6ADCB8FFFEF5}</UGUID><Version>1.9.0027.0</Version><OS>6.1.7601.2.00010300.1.0.003</OS><Architecture>x32</Architecture><PKey>*****-*****-*****-*****-7QJB7</PKey><PID>00359-OEM-8992687-00006</PID><PIDType>2</PIDType><SID>S-1-5-21-3645615904-1275764488-1213078684</SID><SYSTEM><Manufacturer>Acer</Manufacturer><Model>Aspire 5742</Model></SYSTEM><BIOS><Manufacturer>Acer</Manufacturer><Version>V1.21</Version><SMBIOSVersion major="2" minor="6"/><Date>20110425000000.000000+000</Date></BIOS><HWID>4F073107018400FC</HWID><UserLCID>0409</UserLCID><SystemLCID>0409</SystemLCID><TimeZone>Central Standard Time(GMT-06:00)</TimeZone><iJoin>0</iJoin><SBID><stat>3</stat><msppid></msppid><name></name><model></model></SBID><OEM><OEMID>ACRSYS</OEMID><OEMTableID>ACRPRDCT</OEMTableID></OEM><GANotification/></MachineData><Software><Office><Result>109</Result><Products/><Applications/></Office></Software></GenuineResults>  

Spsys.log Content: 0x80070002

Licensing Data-->
Software licensing service version: 6.1.7601.17514

Name: Windows(R) 7, HomePremium edition
Description: Windows Operating System - Windows(R) 7, OEM_SLP channel
Activation ID: d2c04e90-c3dd-4260-b0f3-f845f5d27d64
Application ID: 55c92734-d682-4d71-983e-d6ec3f16059f
Extended PID: 00359-00178-926-800006-02-1033-7601.0000-2192013
Installation ID: 004030487444316154633355364454574130098246887233018062
Processor Certificate URL: http://go.microsoft.com/fwlink/?LinkID=88338
Machine Certificate URL: http://go.microsoft.com/fwlink/?LinkID=88339
Use License URL: http://go.microsoft.com/fwlink/?LinkID=88341
Product Key Certificate URL: http://go.microsoft.com/fwlink/?LinkID=88340
Partial Product Key: 7QJB7
License Status: Licensed
Remaining Windows rearm count: 3
Trusted time: 12/23/2013 11:04:27 AM

Windows Activation Technologies-->
HrOffline: 0x00000000
HrOnline: 0x00000000
HealthStatus: 0x0000000000000000
Event Time Stamp: 11:7:2013 19:43
ActiveX: Registered, Version: 7.1.7600.16395
Admin Service: Registered, Version: 7.1.7600.16395
HealthStatus Bitmask Output:


HWID Data-->
HWID Hash Current: NAAAAAEABAABAAEAAAACAAAAAgABAAEAeqiAWx7NiDhAUDSJAi109zIs7CwE1grlGhNcXQ==

OEM Activation 1.0 Data-->
N/A

OEM Activation 2.0 Data-->
BIOS valid for OA 2.0: yes
Windows marker version: 0x20001
OEMID and OEMTableID Consistent: yes
BIOS Information: 
  ACPI Table Name    OEMID Value    OEMTableID Value
  APIC            ACRSYS        ACRPRDCT
  FACP            ACRSYS        ACRPRDCT
  HPET            ACRSYS        ACRPRDCT
  BOOT            ACRSYS        ACRPRDCT
  MCFG            ACRSYS        ACRPRDCT
  ASF!            ACRSYS        ACRPRDCT
  SLIC            ACRSYS        ACRPRDCT
  SSDT            ACRSYS        ACRPRDCT
  SSDT            ACRSYS        ACRPRDCT
  ASPT            ACRSYS        ACRPRDCT
  SSDT            ACRSYS        ACRPRDCT
  SSDT            ACRSYS        ACRPRDCT
  SSDT            ACRSYS        ACRPRDCT

Thank you Noel!

Linnemeyerhere:
I ended up using a properly formatted external hard drive to save my bad disc's image. It was about 60 GB so I couldn't use a USB. Then I changed out the hard drives (I already bought the HDD so no SSD for me) and booted the computer from the system repair disc. The system repair box came up and I restarted it again without the system repair disc. It booted as if I never had a problem, no error, no product key needed. I installed drivers, unplugged the external drive and everything is great!

Thanks for your help!