Why did my data disappear? How to recover lost data?

This 3.5" 1 TB WD Caviar Green HDD started to act strangely a little while ago when it started accessing files slower then normal...

On long copies it would stop with some error,

Eventually I got errors like original files not found.. The next thing I knew, the folder of interest (holding 3/4 of the content of the drive) was "empty", with "0Kb" of data and "0 files", a delete operation was never run by me, this happened after a failed copy operation...

I'd like to get some opinions on whether the drives problem is in the direction of hardware or software (corupt filesystem, bad sectors)

Thank you all,

This information is very important to me and since this is the backup, and my origional also died (for sure hardware) I have no other copies, and the situation really depresses me...

I'd also like to know if I have any hope of getting those lost files back, and what approach is best to take. Also, hypothetically if I was going to shell out a 1000$ for data recovery what are my chances of getting that 500GB of stuff back (at least some portion)?