A drive error has nothing to do with the algorithm. Regardless of how what format your data is stored in, if you have a bad sector you generally have lost the data in it. As mentioned earlier, FLAC can decode through errors, so if the remainder of the file is still intact, then it's mostly recoverable. With a compressed file, one sector of compressed data holds more information than a sector of uncompressed data, so you'll lose more of the original wave if it's compressed.
With the move away from physical tapes, I urge people to realize that digital data essentially doesn't exist unless it exists in three distinct places. I generally have two synchronized hard drives, a binder of DVDs and I regularly FTP shows to a friend who also keeps them around. The latter is a good backup method: find a trusted friend who likes listening to the stuff you tape and tell them you'll give them a copy of everything you record under the condition that they keep it.
Using multiple backups has saved my ass in the past. Before I had a pair of drives, I had one die. "No problem," I thought, "I'll just use the backup CDs." Unfortunately for me, one of the CDs wasn't good; I could only pull about half of the files off it. I was able to track down a copy from someone I'd traded with nearly a year before. I learned my lesson then and instituted my current system. To save time from FTP transfers, my buddy recently mailed me a 120 GB drive. I filled it and will send it back this week.