Kappy: AppleCare would cover a new HD, correct?
Boominathan: Did you buy AppleCare, which should cover you another year?
Are you going to have Apple replace the drive or do you plan to do it yourself? Will you replace the drive with a larger drive or the same size drive?
You can find suitable replacement drives at OWC. They may also have tutorials on how to do it yourself, and they sell drives with the needed tools. If you do it yourself then you will also need an external enclosure to use in the process. The actual process involves the following:
How to replace or upgrade a drive in a laptop
Step One: Repair the Hard Drive and Permissions
Boot from your OS X Installer disc. After the installer loads select your language and click on the Continue button. When the menu bar appears select Disk Utility from the Installer menu (Utilities menu for Tiger, Leopard or Snow Leopard.) After DU loads select your hard drive entry (mfgr.'s ID and drive size) from the the left side list. In the DU status area you will see an entry for the S.M.A.R.T. status of the hard drive. If it does not say "Verified" then the hard drive is failing or failed. (SMART status is not reported on external Firewire or USB drives.) If the drive is "Verified" then select your OS X volume from the list on the left (sub-entry below the drive entry,) click on the First Aid tab, then click on the Repair Disk button. If DU reports any errors that have been fixed, then re-run Repair Disk until no errors are reported. If no errors are reported click on the Repair Permissions button. Wait until the operation completes, then quit DU and return to the installer.
If DU reports errors it cannot fix, then you will need Disk Warrior and/or Tech Tool Pro to repair the drive. If you don't have either of them or if neither of them can fix the drive, then you will need to reformat the drive and reinstall OS X.
Step Two: Remove the old drive and install the new drive. Place the old drive in an external USB enclosure. You can buy one at OWC who is also a good vendor for drives.
Step Three: Boot from the external drive. Restart the computer and after the chime press and hold down the OPTION key until the boot manager appears. Select the icon for the external drive then click on the downward pointing arrow button.
Step Four: New Hard Drive Preparation
1. Open Disk Utility in your Utilities folder.
2. After DU loads select your new hard drive (this is the entry with the mfgr.'s ID and size) from the left side list. Note the SMART status of the drive in DU's status area. If it does not say "Verified" then the drive is failing or has failed and will need replacing. Otherwise, click on the Partition tab in the DU main window.
3. Under the Volume Scheme heading set the number of partitions from the drop down menu to one. Set the format type to Mac OS Extended (Journaled.) Click on the Options button, set the partition scheme to GUID then click on the OK button. Click on the Partition button and wait until the process has completed.
4. Select the volume you just created (this is the sub-entry under the drive entry) from the left side list. Click on the Erase tab in the DU main window.
5. Set the format type to Mac OS Extended (Journaled.) Click on the Options button, check the button for Zero Data and click on OK to return to the Erase window.
6. Click on the Erase button. The format process can take up to several hours depending upon the drive size.
Step Five: Clone the old drive to the new drive
1. Open Disk Utility from the Utilities folder.
2. Select the destination volume from the left side list.
3. Click on the Restore tab in the DU main window.
4. Check the box labeled Erase destination.
5. Select the destination volume from the left side list and drag it to the Destination entry field.
6. Select the source volume from the left side list and drag it to the Source entry field.
7. Double-check you got it right, then click on the Restore button.
Destination means the new internal drive. Source means the old external drive.
Step Six: Open the Startup Disk preferences and select the new internal volume. Click on the Restart button. You should boot from the new drive. Eject the external drive and disconnect it from the computer.