Worst case scenario, you cand I can order a new hard drive at a huge discount to anything that Best Buy or any local tech shop will charge you.
Since you have all your files backed up.. And since you have an install disk.. replacing a hard drive is simple enough, and your mac will run well after replacing it, and then using the install disk to get your OS back ..
For instance, here is a compatible 320 gigabyte hard drive for 40$ brand new click here
That one wont come with any cables, or screws.. But you shouldnt need them..As your mac already has the cables to connect the hard drive ( which are currently connected to the hard drive inside it )
Or, you can go a little more expensive and get some extra storage space click here
That one will also work in your mac, and rides in at 500 gigabytes.
You will notice I havent recommended a Terrabyte drive.. As those in my opinion, still can be rather finicky and problematic on may fronts.
That being said, I wanted you to get an idea of the cost of a new hard drive.. So if you do end up considering going to a local tech shop.. If the cost is over 60 $.. I would strongly consider ordering the hard drive yourself via one of the links above.. And Im certain with the steps you have been able to complete and perform.. You will have no issues removing the old drive or installing the new one , and then using your disks to install the OS again.. Besides, you've got me to assist if needed!
Now, as far as the hard drive issue... I do hope, that if we create a new user account.. That this will help us..
When we do create the new user account, Id like to make sure we run the disk verify, disk repair, and then the disk permisssions repair..
But especially the disk verify, and disk repair.. We may need to run those multiple times while the mac is running..
And then create the new user..
And then run them again from inside the new user.. At this point, I estimate our chances of success around 25 % .. But theres always room to get lucky within that 25 %.
Hope your work day is going well...