Try running virus detection program on it. Had a similiar problem a few years ago when my computer was infected with a boot sector virus. Drive worked just as you describe yours, works but won't boot. IIRC there is an option on the format command to reformat the boot sector only. Something like /MBR. We use XP here and it's not in the format help...
As for drives, check out E-Bay. Lots of cheap drives.