Ignore the PC blokes on here, they don't know what they are talking about. Apols to molgrips, he's not too far off the mark.
Switch the ps3 off, Remove the HD, do not remove it from the cage (you can do it, but you have no need to, and the screws are very, very soft) btw this bit does not invalidate the warrenty, it's designed for randoms to upgrade the HD so long as it's a laptop type compatible.
There are videos on yahoo of how to remove the HD, very easy, the only tricky bit is the screws which you don't need to do.
Put the HD back into the PS3 and power on.
The PS3 autoformats any new HD, so pre-formatting on a PC is a waste of time. It also means that you cannot swop between HD's and you have to backup by telling the PS3 you are backing up and using another external HD or USB stick.
The PS3 has a bog standard OS permently on it - if this is borked then you are borked - otherwise you should then be able to use your orignal USB stick D/L of the update to get your PS3 up to date and working.
If the HD doesn't format do you have a spare one bobbing about you an stick in as a temp measure to see if it is the HD.
I would have thought however that the sony guys would have told you to do this? if there is an underlying problem with the HD that is, that might be tech speak for "bugger, the ps3 has died but we are blaming the customer".