Windows XP Session3_initialization_failed and more problems

This is the situation that I have come into today. One of the employees that I support called me to their office for a blue screen of death. The error message was SESSION3_INITIALIZATION_FAILED. I checked out some resources online and found some possible causes and solutions. After trying the solutions offered online i.e. safe mode, last known good configuration, etc. I came down to the last option trying system recovery from the windows XP cd. During the system recovery I noticed that every 4-5 files that copied over there was 1 file that was unable to be copied. I thought it may have been my XP disk so I tried another same problem. I decided to skip the files that could not copy over and see what would happen. After all the system recovery files that could be copied over were copied I got the message windows XP can not be ran on this machine harddrive may have errors or be corrupted. I restarted the computer and again went into the recovery console and attempted to do the chkdsk /r to see what might be wrong with the harddrive. It got to 40 something percent and returned "one or more unrecoverable errors on disk"

I think that the hard drive may be shot because the laptop is an older model dell latitude and everything about it is pretty beat up. The windows XP installation that was on there was also less than a month old due to a previous crash on the computer. So Im thinking definitely harddrive. Just want to see if you had any other suggestions to try and get the computer fixed  before we get the user a new computer.