Hello Cyberjan,
The clone may or may not work. It depends on what the data was that you skipped. If it is just a bad sector with a picture on it or some temp file, then it'll be fine. If the bad sectors are where important Windows files are located, then you can have problems.
As far as a different way to do it would be to attach the hard drive to another computer and just save your important files to DVD on the other computer. Then when you install the new hard drive, just do a fresh install of Windows and copy the important data from the DVDs to the new hard drive. If you don't have the recovery disks, you can order them for cheap from the manufacturer.
If you can clone the recovery partition to the new drive by itself, you can use Acronis to set it as the active partition. When it is set as the active partition, it will actually boot to the recovery manager. Once it recovers the system, it should set the partiions and drive letters the way they are supposed to be and boot normally. I've done it a few times.
To answer your last question, yes, the hard drive is still bad. SMART failures mean the hard drive is not operating according to the factory specs. It isn't spinning at the right speed, it may not be accessing, reading, writing at the right speed, and there could be mechanics failures. Bad sectors are another problem in itself. So I'd say that drive doesn't have much longer until it is completely worthless.
Hope that helps!
