Does Poor HDD performance = Dying HDD?

[Format _C:]

I am using a Seagate 160GB 7200.9 SATA II and with in the past week the performance has gone to the HDD Led constantly on and the computer is so slow when the HDD LED is lit or doing any HDD intensive application (My MP3s will not even play right they skip whenever my Screen Saver is activated/Deactivated or a UAC box pops up) does this mean the drive is dying? The drive is almost full so does that slow it down? I have Windows 7 Ultimate 64-Bit installed and it set to defrag the HDD's two partitions once a week at night 3:00 AM to be exact

Specs
Gigabyte GA-G31M-S2L
E5200
2 X 1 GB of DDR-II 800
Seagate ST3160811AS (SATA Port 0)
3DFuzion Nvidia 7600GS
Lite-On SOHR-5238S (The only IDE/PATA device in my system)
Lite-On iHAS324 (SATA Port 1)
Cooler Master RC-690
Antec EA-380
I don't have another SATA HDD to install but I was thinking of getting a WD 750GB Black anyway after my XMAS Money comes in
I have not ran any tests on it not even Seagates tools but the drive is out of Warranty anyway
So is this sad news my Drive = Dying soon do be dead? or is it something else? (yes I tried different cables and SATA Ports,power connections)

 

[Nenu]

Yes it will appear to run much slower when nearly full.
Dont do that!

 

[[LYL]Homer]

And never allow it to compress your drive, you'll know it has done this by a bunch of blue files/folders in Explorer.

 

[Format _C:]

The only files I have on the drive that are compressed are my Winrar Zip and Rar Archives I have two partitions on the drive
C: (OS) 33.2GB/13.7GB Free
D: (Data) 115GB/17.2 Free

 

[Nenu]

He was referring to NTFS compression of the hard drive which can make drive access slower when accessing compressed files.
Theres nothing to solve here yet, free some space up and see if things improve.

 

[Format _C:]

I freed up about 50GB of the 115GB Data Partition (Only using 14.6GB where the other .4 went I don't know) I deleted my Music and videos (No not those videos ) and then I defragged it and still the same performance problems So Should I replace the drive? And In the bios on my Gigabyte GA-G31M-S2L i have several options for the SATA controller which do I choose? right now its on enhanced
here is an excerpt from the manual on that option: does this board support AHCI?

 

[Yonzie]

Sounds like either lack of memory or a dying drive. With 10GB+ free space, space should not be an issue. Check Task Manager for memory use when it's hammering on the drive.
Maybe it's just time to reinstall?

 

[Magnetoman]

Is the drive running in PIO mode instead of UDMA? The symptoms seem to suggest so.
Check under the IDE channels in Control Panel.

 

[450]

Did you do a memtest?

 

[Format _C:]

memtest came back with no errors and I changed the drive to Auto which put it IDE mode and now it seems to be alot faster (I had in enhanced mode for when I reinstalled my OS because I thought is was AHCI but that what was slowing down my drive go figure!)but I backed up my data anyway which I do once a week (On site to my HTPC's drive which is 500GB)