My son managed to drop his Sony E series laptop while it was running and appears to have damaged the HDD. Windows (8) wouldn't boot up so I reinstalled it from the recovery partition. However over time it is becoming less stable and disk utilities I have run report irreparable disk faults. No separate installation media, just the recovery partition.
It has currently been upgraded to Windows 8.1.
I believe it may be in our best interests to replace the HDD before it fails completely. So this is where the dilemma begins.

I can take it to a retailer/service centre and get them to install a new drive and clone the old drive to it. How well would it transfer if the old disk has faults on it? It will cost half what the laptop is currently worth to achieve this from the quotes I have had.

I could get a new HDD installed with just a fresh copy of 8.1 on it and reload all the apps and data. I read something about the license key for Windows being held in the bios. Does that mean the OS is easy to reinstall/activate?

A third option is to install the new HDD myself and use a Vaio Recovery USB to reinstall Windows. But I have read that it won't do this unless the new HDD is exactly the same as the old one. I doubt the same drives are even available any more. And I would like to put a 7200rpm drive in to replace the 5400rpm if I have to change it (can't afford a big enough SSD unfortunately) to improve performance slightly.

Otherwise I could buy the new HDD and use cloning software to transfer by connecting both drives to my desk top PC but that presents the same cloning problem as getting the professionals to do it, but with less likelihood of success.

Any other reasonable options I haven't considered?

Has anyone in a similar situation had a successful outcome that didn't break the bank?