I had the same thing happen when I attempted to upgrade from Snow Leopard. My files are not gone. (It loads the installer off the disk. So the disk is working.) I rebooted in Single User mode (held down command S during bootup). Following directions at the prompt and using fsck_hfs revealed that my disk is write locked!
Now things make sense. The OS installer write locked the drive. That is why the diskutility can't repair the drive! Genius bug!!! I took the drive out of my power book, put it in an external enclosure, plugged it into my old Mac Mini and am backing it up.
Even the genius instructions reveal the drive isn't bad: 'backup and format'. DUH! Why would they tell you to use a bad disk in the future. It isn't bad. It is write locked. Thanks! Not what I expected. How do I remove the write lock? Come on, backing up through USB, then writing back through USB is going to take 20 hours. This bug is wasting my time!
These aren't drive failures. They only happen every time I update the opperating system! The drive may need a fsck before installing the OS, but can't be fixed while write locked. Nobody told me to fsck before updating the OS, and nobody told me how to remove the write lock. Where is the manual?