Server stuck at startup

I set up a new Xserver at a school the other week. It ran great until yesterday when a user informed me that she couldn't access it. I wasn't able to log into it via ARD or Server tools... other than to see it on Server Monitor (everything looked fine).

I rebooted the server through LOM, but still could not access the server. I drove over to the server closet and found it had hung up at the grey screen (Apple logo/spinning wheel). I powered the server down and started up on the install disk in an attempt to run Disk Utility/Repair Permissions... which failed (on exit error).

Since this was a new install and there wasn't much in the directory yet, I did a fresh install after re-partitioning the drive. I was able to completely configure the server, DNS, Open Directory, etc (everything worked). But when I logged out, it entered the spinning screen again. After waiting an hour or so, I powered off the server and rebooted... and it hung again at the Apple Logo/spinning wheel screen again. I left it overnight to see if it'd work its way back to life... but just checked it this morning and it was still in the same spot.

Since this happened on a fresh partition/install, I'm beginning to think it is a hard disk issue. Maybe a bad sector on the drive? I'll be going back later today to mess with it... anyone have any other ideas? I'll probably end up calling Applecare, but thought I'd check here to see if someone had another direction for me to look at.

Thanks