Sounds like a classic hard drive failure to me.
Typically as the spindle bearing wears out, or the spindle drive starts to fail or malfunction, the drive is either unable to maintain accurate alignment of the head to the magnetic tracks, or the spindle speed starts to fluctuate too much.
You start to get bad sectors appearing, and the moment you get a bad sector in a critical area, i.e. the part of the drive storing the operating system, boot sectors, registry or the file allocation table, that is when you find the system no longer boots.
Corrupted sectors in the boot sectors typically give the error you are seeing, errors other areas of the drive usually result in blue screen, or the machine simply locking up during boot up.
As already suggested, connected the drive as an external drive to another machine, may give you an opportunity to retrieve some data. If you have corruption in the FAT, this can result in only partial recovery of files though.
I would certainly consider replacing the drive, as re-formatting and doing a windows install, usually only works for short time, before corrupted sectors start appearing again.