That is an ominous error message. It's good that you've backed everything up onto another disk. How long have you had the drive?
You could download a diagnostic utility from the actual hard drive vendor, or you could get a general diagnostic utility like HDDScan ( http://hddscan.com/ ) and: 1.) look at the S.M.A.R.T. report; 2.) perform the linear verification test and S.M.A.R.T. tests. That will usually tell you whether you should ditch the disk or not, or how long you have until imminent failure.
About a week ago Windows 7 was throwing repeated warnings about my secondary storage disk actually. The day before it happened, I had a few applications freeze while trying to read from that drive, and since the drive is an old 80GB, I figured it was on its last legs once the errors began popping up (every 20-30 minutes about 4-6 times).
After I backed up everything to another drive, I ran HDDScan to see what was wrong, and found that the only value below threshold was the Spin-Up Time attribute; everything else still looked good. Based on this, I decided to keep using the drive as my secondary storage device on a probationary basis with daily backups to a newer drive and frequent commits to our SVN server.
Since that day, I haven't had any problems. Occasionally, it will take 3-4 seconds for the drive to spin-up, but otherwise I haven't had any more warnings or problems working with the drive. But in my case, I was merely getting "warnings" (due to an out of range S.M.A.R.T. value) from Windows, not errors about not being able to perform operations on the drive. And even still, the drive isn't under heavy usage; it's only about 5% full; and everything on it is constantly being backed up to at least 2 other storage locations.