Recovery manager won't load-black/blue screen

i have a HP Pavillon dv5 - had it for about 8 months. I upgraded it from Vista to windows 7 just a few months ago. I start it up a few days ago and Windows 7 says it failed to start - so I run the recovery manager, but it doesn't load - just a black screen with the cursor. I tried pressing F8 and trying more options - safe mode, last restore point... and some more, but it all loads to a blue screen with the cursor and nothing else.

The night before it was fine. I did a hard disk test and the quick test goes to 100%, but the full test only goes to 50% before it freezes. Could it be the hard disk problem?? I never dropped it!