Failed cells are caused by poorly-designed battery chargers which do little more than cook Nicads, then trickle charge them for an extended period.
The result is a buildup of "rogue alloy", which is a Nickel-Cadmium alloy nearly identical with the correct alloy but having a slightly reduced electrical potential. Once several cells develop appeciable amounts of this "rogue alloy" the capacity of the battery pack is reduced, leading to a battery which appears to exhibit "memory effect". True memory effect is only exhibited by Nicads which experience extende dperiods of identical charge and discharge cycles (satellite batteries, for example).
For a magnificent explanation of the details, the Anton Bauer company published a very good booklet aimed at the broadcasting industry (in which I work) which set out the situation in detail and which contained a wealth of information on Nicads and NiMh batteries.
By all means go for the NiMh re-pack, but be sure to get a proper NiMh charger as well.