Macbook HD Died

I recently had my hard drive crash in my macbook and am trying to find out what I might be able to do in terms of recovering data. When I try to boot I get the apple logo/boot screen. I took it into the apple store and they booted off their network and there were errors/failures on the drive. They were able to see some of the file structure.

I already have a replacement hard drive and an enclosure to make an external usb drive with one of them.

My questions revolve around what my options are to do from here in terms of recovering from the old drive. Should I install the new HD and start fresh, use the old one as an external and just attempt to copy as much data as possible? Is there a way to maintain what was installed/settings/etc? Is it possible to somehow boot from the old drive and attempt to setup time machine (no I didn't previously, yes I plan to going forward). Any help on how I can maintain as much from my old drive as possible would be appreciated. Thanks.

Do you have another Mac around? If so connect the two together via FireWire and then boot the 'dead' Mac into Target Disk mode by pressing the 'T' at startup. This will make the 'dead' Mac appear like an external hard drive on the second machine.

If you have no second machine, swap the hard drives over, putting the old one into an external case, you may then be able to use a program such as Disk Warrior to retrieve files...