Let me guess, it's a white midrange macbook right? Not the base model and not the black, but the middle of the road white one.
I've heard of this exact thing two times in the past few weeks, first it was my wife's. She's got the middle grade white macbook and the HD died, no abuse or anything, it just failed. Luckily she had a backup and she was in warranty! But there was a lady at the genius bar when I took it in for HDD replacement, she had the same problem (same model of macbook) and was 9 months outside her warranty coverage, they still replaced it for her free of charge after she asked hard enough
The second time was a lab partner of mine (I'm a university student) who also runs a white middle grade macbook and had the HDD fail in the exact same manner. He also got a replacement free of charge and was just outside of warranty. Apparently they see a lot of this in the middle grade macbook for one reason or another, I can't see why but that's what they told him at the genius bar. I'd take yours in, and I'd ask them really nicely to take good care of you!
By the way, my wife's (and I assume my lab partner's) HDD siezed completely, probably a bearing on the motor that went out or something but we had the same clicking noise as you describe and just prior to the failure the computer was running noticeably slow (as a result of the lower RPM's of a failing drive).
Hope that helps!
SLC