Attempt to install Mountain Lion has highlighted need for internal disk repair. Even after "repair" ML still says disk is damaged. Attempt to restore from Time Machine back-up failed - cannot 'see' internal HD to restore to. Help!

Csound1, William & Sig .... thanks for taking the trouble to reply. I fear you are right - I'll need a new disk. I'm booked in at the Apple Genius Bar in Bordeaux, France on Wed ... quite a challenge as my French isn't great! The current internal disk is 500gb, does anyone know whether I can upgrade my 21.5" iMac (circa Oct-2009 vintage) to a larger size internal disk, 1Tb or even 2Tb? I already have one external 2Tb drive and another one on order (I have masses of media stored and more planned as I've just taken up photography). Seems a bit of a pain managing with only 500gb internal storage. OR, can you advise me on how I can store all my photos on my new 2Tb external drive - I can't seem to figure out how to set the path for iPhoto to see them (I can't even figure out where they are stored right now!). Same with iTunes, how do I set the default storage to the external drive (I moved everything manually and then imported them all from the new drive - it worked but seemed very convoluted). Any advice on how to manage multiple drives gratefully received. And thanks again for previous replies.

Thanks for the help on iPhoto and iTunes management. Unfortunately, after having a new HD installed and having successfully restored from Time Machine my back-up, the back-up has created a volume called "Macintosh HD (Original)". I can see it on the internal hard drive using \Volumes ... The question is, how do I make this my default start-up volume, rather than the "Macintosh HD" volume that is basically empty apart from the standard applications that come with ML? I could copy everything across to this volume but can I short cut that process and change the default start-up volume? I have tried holding down the Alt/Option key on booting up but this does not produce the Volme menu screen to give me the choice of start-up volume. Thanks in advance...

Thanks, but I should have mentioned that the restored volume only shows up as a Folder, and not a HD icon. Therefore, it does not appear on the System Preferences>Startup Disk list. When I Go to /Volumes I can see a "Macintosh HD" volume (i.e. a HD icon) which is how the Apple store set up the new hard drive, and a "Macintosh HD" Folder which contains all the files and apps that I restored from my last Time Machine back-up. I am trying to get my Mac back to the way it was before the HD replacement ... can I make this Folder the start-up volume and all its contents appear as they did before (e.g. desktop, photos, etc) or do I have to copy all these files into their new 'home' in the Macintosh HD volume, and then import photos, music etc into the relevant apps?

Any tips greatly appreciated...