MacBook HDD Not Recognized

I am working on a MacBook that stopped booting several days ago. Trying to fix the problem I eventually used the OSX install disk to boot and tried disk verify and repair. Both tests said the disk was in fine condition. The volume is ghosted out, however, and when trying to do an archive and install it will not show up in the destination list. Eventually I decided to connect the drive to another MacBook with a USB to SATA adapter. When connected the drive would not mount and verify and repair came back ok again. I finally figured out I could create an image of the drive on the 2nd Mac and mount the image to view the files that were on the HDD. Since the files are now backed up I decided to just erase and format the drive using disk utility through the install disk. This process gave me an error saying the drive could not be erased due to an I/O error.

Is there any way this drive could be salvaged? I'm out of ideas and a few days of searching google hasn't given me anything that has led anywhere.

If the drive can't be fixed could anyone explain why nothing will recognize the drive but I can still make an ISO of all the files?