Well, it sounds like a case of drive failure. One other thing you could try is to use partition magic to format the drive. It may work, then again it may not. YOu can get partition magic at the site below:
http://www.powerquest.com/partitionmagic/

YOu could also try to reinstall your operating system and see if that corrects the issue.

Further, if you had access to a windows 98 boot disk, you could try to format the drive using that disk.

It may be that your OS won't let you access it, but you might be able to from DOS...

If nothing works, it would appear that you need to return the defective unit and obtain a replacement. MOst drive manufacturers offer 1-3 year warranties.
Good luck.
BB