Hard drive failing? Help

Hello I started up my computer and SmartReporter (a utility I use) poped up an error and said that there was an impeding drive falilure. I opened disk utility and it said S.M.A.R.T status - Failing. I backed everything up and Verified the disk using disk utility, and it said

Keys out of order
The volume Macitosh HD needs to be repaired
Error: The underlying task reported failure on exit.

I searched around and discovered that this is a software error with the OS.

Is it possible that the OS is corrupt and was somehow showing me that my S.M.A.R.T status was failing when the drive is ok? Or is a S.M.A.R.T status -failing deffinitally a sign of a hardware failure?

Small update.

Now the S.M.A.R.T status says verified

Seems to be working ok

mad jew said:

How terribly disconcerting. Have you noticed anything strange about your Mac's performance (speed or strange behaviour)? Hopefully it's just the 10.4.3 issue of verifying from the start up drive.

Click to expand...

It seems to be running ok but I assume that this can't be a good error. My main question is should I replace the HD? Is it possible to show a failing S.M.A.R.T status and still be ok? Or should I not risk it?