So the slow down issues could be more internal processes running as opposed to the actual hard drive?I am trying to distinguish really if its the HDD causing the slowness or if its the actually applications running in background.
Clearly there is an issue with the HDD due to the error, however I have seen on a youtube video of someone placing a HDD with the same error as mine in another computer (all be it on Windows 7 not 8) and there was no error and it continued to function fine - I think it was highlighting the sensitivity of the SMART disc error facility, and possibly you can continue using it as long as you understand running the risk it could go at any point.
From my screenshot above, Avast seems to be using a lot of space, likewise "Software Reporter Tool" which is relatively low on that picture flew up moments after - on looking this is related to Chrome.
It is probable that a lot of the slowdown is due to the failing drive, with the computer reading and retrying to read failing sectors.If the hard drive is failing surely it is better to replace it now rather than leave it to fail at the worst possible time. Hard drives are relatively cheap currently.
If you intend to install windows 10 (don't bother with windows 7 now) you would have to clean install on the new drive. There was a free upgrade period from windows 8 to windows 10 but this ended over a year ago.
Officially you would have to buy a DVD and licence from a retail store about £85
Microsoft Windows 10 Home - 64-Bit DVD (OEM) - KW9-00139
However you can just buy a downloadable licence for about £12
buy Microsoft Windows 10 Home OEM CD-KEY GLOBAL in scdkey
and then make a windows 10 USB installer using windows 10 media creation tool and a blank 8GB USB
Download Windows 10
If you need further help on this let us know
The highly recomended is to go with an SSD drive and clone or backup then reinstall Windows.
However if you just clone to a new SSD then Windows is there but you will need the clone software too.
I can highly recommend this video by US tech Carey Holzman on the big benefit of upgrading to SSD for an older laptop.