It really seems that you've got a bad HDD.
My second unit came from ebay, a buy it now "brand new" iriver. It came with a bad HDD, not corrupted, but had similar problems (I only could record wav for 10 minutes, then reading data was a pain in the ass).
I did perform the CF mod and I'm absolutely happy with the results. I have a crappy 4GB CF card inside, but it's enough for most club shows I tape.