Macintosh 512k floppy drive shows ? then X

I recently acquired a Macintosh 512k from 1984 with all the original floppy disks and manuals!

The computer starts up with a "happy mac" face then shows a ? asking for software. When I insert the system disk, the computer spits it out and then shows an X. I tried cleaning the drive with a floppy cleaner with no results. I double checked the disks in another computer that read them perfectly. So it appears I need a new floppy drive or need to clean it really well. The drive operated mechanically fine, just won't read the disks.

Any ideas? I'm am willing to take it apart, but from what I have read cleaning might not fix it. .