SATA300 or SATA3.0 or SATAII, just a lot of ways of saying it.
Yea man it should. I have a computer with a MB that only supports SATAI (SATA150) and I bought a SATAII and set the jumper to work with my MB. It should work if it works for me.
I'm not sure what to do about your BIOS, maybe update it.
How much do you want to spend? You can get a 500GB for about $100.
Newegg.com - SAMSUNG SpinPoint T Series HD501LJ 500GB 7200 RPM 16MB Cache SATA 3.0Gb/s Hard Drive - OEM
About $40 for 2x the capacity. Not bad. This one should have the jumper setting also.
*EDIT* Yes it could be that your board has some problem with the SATA connector, only way is to test the drive on another machine, switch out the SATA cable also OR use/buy a brand new SATA hard drive and test it on your MB.
*EDIT 2* LOL, can't keep up with you. I just read that post. Sounds like it's the hard drive fault. How long have you had it?