I appreciate this is an older thread now but hopefully the following may be of help to someone in a similar situation.
I recently pulled a hard disk from an old works Dell laptop which was prone to crashing due to bad sectors. The boss said I could take it to play with, so that's what I did.
The first stage was to hook the drive up and run a surface scan. I used Techtool Pro for this and, as expected, it reported a number of damaged sectors on the drive. This was accompanied by lots of repetitive clicking from the drive as it was struggled to read from the disk.
Now that I knew there were bad sectors the second stage was to launch Disk Utility and use its secure erase feature to perform a single-pass zero fill. While not widely publicised, this function serves more than to just overwrite your data on the drive, it also takes bad sectors out of play for good as a "low level" format would.
I ran Techtool a second time, and this time no errors of any sort were reported.
Now, being fairly untrusting of any mechanical storage, especially storage with known defects, I proceeded to fill the drive before running Techtool a third time to check for data loss or corruption. Again, no issues detected.
Finally I wanted to test the resiliency of this "fix" by repartitioning the drive a couple of times (multiple partitions/different sizes), with different partition types (Apple and MBR/FAT), to see if the "fix" was permanent or if it was reliant on the data within the user-area to provide it with bad sector data. A final run of Techtool again showed no issues after a full surface scan, and I've had no more issues with drive since. Although I'd never trust it with anything important I'm happy the drive is usable again and not resting in some landfill somewhere.
The point to all this is Disk Utility's secure erase function is worth a go when you've a sick drive and have tried everything else, especially on a hard-disk based iPod. Disk Utility works fine with my old 40GB Firewire-based 3rd gen iPod. I've no experience of USB-based "Classic iPods" but I presume they're accessible by Disk Utility in the same way.
Hope this helps someone out there, especially as the earliest machines are over ten years old now...
Steve D.