If its a hardware fault (which it appears to be) It is there responibility. They can't just say 'They don't want to'...I dunno what your laws are over there but you should have somethng similer to the sale of goods act, and that if they don't you gonna sue their ass....
anyways about the harddrive, an external one is slightly more expnsive, but easier to install as it doesnt require opening the case etc, and it can be used just as a normal drive when its plugged in, not just for back up.
I don't know any US sites for buying shit so i cant help u on that point