Normaly when you initialize a HD it will write around any bad block or sectors if any are present.

I have had occasion to see a drive with similar simptoms as yours fail the initialization, but that is because it had reached the maximum number of bad sectors in the buffer alocated by the manufacturer.

For example, a 20 MB drive will actualy format out to 21 or 22 MB depending on the manufacturer. On average there is about a 30 bad block buffer built into the software hardware for the drive. Some hard drive software is smart enough to try and repair any corrupt or bad sectors, but this is not always possible.

The bottom line is that you may want to initialize your drive, but if I were you, I would first contact the manufacturer and see what they say. You may be able to get them to either extend the warranty to cover your HD or give you a break on the repair if necessary.

One other thing you might try if the HD fails the initialization, there are several other HD initialization packages on the market such as AppleCrate. I have had some success with these.