On the bright side, the drive is recognized. First thing I'd check would be the master/slave settings - be sure they're correct for your configuration. A wrong jumper setting on either drive will screw you up every time.
Not real sure this will work for you (its pretty geeky - not for the timid or the 'puter illiterate), but I've found
BartPE to be an exceptionally useful, powerful, versatile tool - provided you build it correctly and appropriately for your particular need, and that you know how to use it.
Essentially, you create a bootable CD or DVD from which Windows XP (SP1 or greater) will run, independently of the operating system on the subject machine's hard drive. It does have limitations; its relatively sluggish, and the number of concurrent apps it will run isn't real large (not good for multi-tasking

), but for what it seems to me you want to do - pull files and folders from the troubled drive and put them somewhere else - it ought to do fine.
You'll need the free version of an app called
ISOBuster (the paid version offers more functionality, but you won't need the additional features if all you're gonna do is make a standard WindowsXP BartPE CD), a CD or DVD burning program capable of burning an ISO file {most of the major ones - Nero, Creative, etc, are fine), and a Win XP install disk - an actual Microsoft Windows XP install disk, not an OEM Restore disk. If your WinXP disk is already embedded with SP1 or SP2, you're pretty much good to go. Otherwise, when you set up the BartPE image to burn, you'll hafta
Slipstream SP2.
You can download SP2
HERE (Note: Its a huge file (272391 KB, around 11 or 12 hours at 56K download speed, about a half hour at 1.5MB broadband download speed) - if you're on dialup or less than 1MB broadband, its prolly better to
Order the free XPSP2 CD directly from Microsoft.
Unless you're familiar and comffortable with the basics of what's outlined above, I suggest you do lotsa reading before trying it. There are plenty of good tutorials out there to google up. And even if you are ultrageeky, be sure to read and understand all the documentation accompanying BartPE and ISOBuster before using them.