Windows backup sucks, truely. Win 7 has a sort of backup but even if you backup a whole used system (to DVD-R's) the restore only puts it back to factory default. It saves most of the data but you have to start from scratch, been there done that. A damn nuisance tbh. Win XP?? forget it! You have to install it from scratch then any backups made fail to restore giving errors, a waste of time.
My solution is to use Acronis True Image, an absolute godsend and worth every penny. You can back up a whole complete system to a usb disk as a file or clone the drive for direct replacement and every thing is restorted as it was with no loss of data, it's like it never happened. I've only got the XP version (version 8, an old one) and it doesn't work on Win 7 but I'm sure newer versions would. I used to use Norton Ghost in the past, again very good but you need a boot floppy to restore, and I for one don't have a floppy drive anymore.
As for failed disks the only real option is to put it in a drive caddy and try and read it from a good system, you have to do some sys admin permissions stuff for XP onwards (google it) but they can be read if they're intact and spin up.
Everybody should have a backup (but you know this now ), disaster can and will strike so don't wait 'til you need one before you do it. How valuable is your data! I've always make a point of doing backups and have lost stuff in the past, but luckily only a months worth (I do monthly backups), it pays to be careful.
If I can't be a good example, I'll just have to be a terrible warning...