Disk Utility is found under the Utilities menu after you have answered the Language selection, but before you proceed into the Installer.
Did you purchase Applecare on the machine? If so you should also have a TechTool Pro disk you can boot from to attempt hard drive repairs.
DO NOT DO an Archive and install on the internal drive if it did not pass the Disk Utility Repair Disk with all problems solved. The last thing you want to do on a dying drive is write a bunch of stuff to it. That will b0rk any chance at all of recovering data from it. Only reinstall the system IF the drive has a clean bill of health.
Also; now would be the opportune time to get thyself to a store and buy an external Firewire drive, mate.
You may need to to recover data to, or to be a boot drive on the machine, or even if the internal drive is resurrected, to make your backups to. Use your OSX DVD to do a OS installation onto the EXternal drive, then you can boot from that instead of wasting time rebooting from DVDs.