My external Time Machine hard drive started failing today. Spins up, spins down and stops.
That's when The Finder fails too.
Can an external HD failure bring down OSX?

If the Finder is having trouble accessing the drive it may cause slow downs. Of course any serious hardware failure can bring the system to a panic.

If it's powered by an external supply, unplug the PS from the power source.

If no luck try erasing the drive and run a one pass security erase in Security Options. It will do a bad block check.

The backup is backed up, and I'm retiring this puppy.
320GB HD from 2007. It's done its job.

I would wrap it in a ziplock and put in the back of the closet.
Just. In. Case.

Time to buy a new machine.

Y'know, a little shabby chic paint, some décolletage accents around the edges, and you've got some serious Martha Stewart paper weight/door stop action goin' for ya!

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I've heard/seen those of the PC persuasion simply go buy a new PC over a hard drive failure. You know, if it's inside the case, it must be the PC that's gone bad.

I have older drives than that that are still working. On that note, the drive that my wife's machine was backing up to (connected to my computer) seems to have gotten corrupted - TM could no longer do a backup to it. It just sat there with a partial completion which never would complete. I think it just has some kind of file/volume corruption. Anyway, I have the 120 GB SATA drive that I removed from my Mini for its 500 GB drive upgrade, in an external enclosure. That is now connected directly to her Mini for TM backups. So now, I have a 120 GB IDE drive sitting here with nothing to do.