(I'm assuming you are using Windows)
Hard drive failure would be a different problem, imo. I think it's either a USB problem, or possibly a problem with the OS itself. Given that the USB disk mode is showing up on the player, I'd look at the OS first.
Suggestion: Try another computer first (or, if you don't have another computer, maybe a Linux LiveCD). If another computer works, then you know the problem is on the OS / hardware of your computer. If a LiveCD works, then it's probably your OS. What's also nice about a LiveCD is that you can run this on the terminal, after you connect:
dmesg
This will show whether the player is connecting, and any error messages if there's a problem.