Can I Install Yosemite with a 'failing' SMART Utility?

Your Mac is not "health except for this one value."

When disks fail, data on the allocation table moves stuff around to use good blocks instead of the bad blocks. There are a specific number of these set aside, and once you run out, the desk is dead. DEAD. Data will be lost, it's unreadable, end of story.

The good thing is that this is a "soft" failure at the moment. SMART errors do NOT show up as "false positives," because drive vendors don't want to have to warranty things that aren't guaranteed to die.

So it would not be wise to upgrade on this disk. It is critical that you make sure you have an up-to-date backup (if you have a 90% backup, then back up to ANOTHER disk; don't overwrite known good data with possible bad data), and then replace the disk. Then upgrade, and restore your data from your backups.

Again: Don't take this lightly. The disk WILL fail, probably sooner rather than later, and the more you delay, the larger your chance of data loss.

While the count may be stable it is very, very high at 2047. I would classify anything above 40 as high so you can see this is orders of magnitude higher. I would also guess it is so high as to have already significantly exceeded the amount of 'spare' blocks William refers to.

I would definitely not use this drive for important stuff.

For what its worth I also find Disk Utility as being useless for reformatting and properly mapping bad blocks using the spare blocks although this might be because it is not telling you it is doing this, equally it could be not checking at all. A utility called Scannerz by SCSC is the only Mac utility which I have seen that does a proper job of testing for bad blocks and mapping them out. However the number you have is so far beyond an acceptable level as to make using that pointless.

Usually what will happen is that one day you'll try and wake the machine and you'll get a SPOD that never stops. It'll just go on forever. Then, you'll try to reboot the machine, and it'll go to the grey screen, and never get to the login window. You'll never get the machine to boot, and you won't be able to mount it on another machine, so for all purposes the disk is totally unusable and a total loss.

Now, in cases where you don't have a backup, it often IS possible to recover data off the drive by sending it to a recovery service. That usually costs something like $2000, give or take.

Note that in your case, "one day" could be a month from now, or it could be 10 minutes from now. It's certainly NOT a year or more from now.

Note that your drive has almost 10,000 "power on hours." That's pretty much 5 years of 8x5 usage, or a bit over a year of 24x7 operation. "Typical" hard drives have a life of around 3 years of normal usage, before their failure rates go up exponentially. You're at the far end of that curve. All signs point to now as being the time to replace that drive.