Windows Server 2003 Enterprise SP2

I have a Microsoft Windows server 2003 Enterprise SP2, 4gb ram with a WD 160gb (Model: WD1600AAJS) SATA drive in it now, and it has a bunch of bad blocks and says it needs to be defraged. I have tried to defrag it with no luck and it seems to be getting worse. I would like to copy it over to a new bigger drive before the drive goes totally south. I was looking at using this for the new hard drive (Western Digital Caviar Blue 500GB SATA) or is a 1tb better choice?

What is the easiest and best way to move the data from the old hdd to the new hdd, so I can then use the new drive instead? I was thinking to mirror the drives, then break the mirror and use the new 500gb one.

If you want to transfer your server to a new larger hard disk without reinstallation Windows and other applications again, I have to recomend EaseUS Todo Backup Server. Cloning directly copies the contents of one drive onto another completely, include all boot sectors, files and other data. EaseUS Todo Backup Server will transfer Server 2003 to new hard drive by cloning the system disk to another disk completely. This I have found is the most reliable especialy when you have a failing drive. Another good alternitave is to use Acronis WD edition avalible for download from WD. (this option only works if you have purchased a WD drive to replace your current one. as far as making a "Raid" then breaking it I would not recomend due to too many things that can go wrong resulting in data loss