The virus isn't a physical thing, so how can it do physical damage, I think they are taking you for ride.
Bad sectors on a hard drive are common and unrelated to virus activity, a virus might give your hard disk a workout if it were to create a lot of hard disk activity, modifying files, deleting, that would have to be enormous to cause it to fail and you would be well aware of this level of activity.
It could delete the master boot record or the file tables (the record of where files are on the HDD), this would render your HDD unbootable, etc. however, isn't physical damage and when recovered the HDD would work.
We need a lot more information on the ZA message as without it we are totally in the dark.
