It's the hard drive, most likely. But, hard to tell if it's a bad drive or corrupted files, at this point. I can't tell from the Compaq website if error #1-02 is a physical failure or a MBR failure.
You are right trying to run chkdsk /r. Double check your BIOS settings and that you have the correct CD (bootable) in the drive.
Assuming that you can boot to the CD: If running chkdsk /r doesn't work, try fixmbr. Both commands would be run from the Windows Recovery Console located on the CD. If fixmbr doesn't work, try fixboot, also from the Recovery Console.
If none of the above works, download and run the hard drive diagnostic utility from the drive manufacturer. You may need to remove the drive to determine the manufacturer - be sure to have the laptop turned off and remove the battery and AC adapter before removing the drive from the computer.
Post back and let us know how you are doing.