Problem with 20EADS Green Drive

Installed retail version of this 20eads drive in an old dell 4600 with added ram to run windows home server last december. system drive/data is a wd 750gb caviar black . work great for 3 months then server started taking hours and days to backup laptops and when copying files either from laptops over network or even within the server itself, takes a while and there seems to be a lag on file processing. Hav repeatedly run chkdsk with no problems shown. whs says drives are healthy but from time to time got disk has bad block then error goes away. when opening fileusing my computer or library, takes long enough that you can see the green bar go from left to right very slowly and opening music, photo or video files takes awhile, killing reason for using whs to view all media files.

Finally downloaded and ran wd data lifeguard diagnosis 1.21 and quick test passed but twice the extended test found bad sectiors. first time it said  I could repair but after hitting repair it then said cannot repair and should call WD. Ran again and did not finish extended test and instead said too many bad sectors to complete test. Here are test results;

Test Option: QUICK TEST
Model Number: WDC WD20EADS-00R6B0
Unit Serial Number: WD-WCAVY1357675
Firmware Number: 01.00A01
Capacity: 2000.40 GB
SMART Status: PASS
Test Result: PASS
Test Time: 18:14:48, May 08, 2010
Test Option: EXTENDED TEST
Model Number: WDC WD20EADS-00R6B0
Unit Serial Number: WD-WCAVY1357675
Firmware Number: 01.00A01
Capacity: 2000.40 GB
SMART Status: PASS
Test Result: FAIL
Test Error Code: 08-Error was detected while repairing bad sectors.
Test Time: 21:06:38, May 08, 2010
Test Option: EXTENDED TEST
Model Number: WDC WD20EADS-00R6B0
Unit Serial Number: WD-WCAVY1357675
Firmware Number: 01.00A01
Capacity: 2000.40 GB
SMART Status: PASS
Test Result: FAIL
Test Error Code: 08-Too many bad sectors detected.
Test Time:

22:57:06, May 08, 2010

 

Can any make a suggestion or do I need to replace this drive?

I would replace your drive.

However, I would first try a more comprehensive SMART diagnostic tool. Look for reallocated, pending, or uncorrectable sectors.

HD Sentinel (DOS / Windows / Linux):
http://www.hdsentinel.com/

HDDScan for Windows:
http://hddscan.com/

See this article for SMART info:
http://en.wikipedia.org/wiki/S.M.A.R.T.