I deal with computers for a living and hard drives - ESPECIALLY laptop hard drives and smaller, like you'd find in a camcorder - DO go bad, and they go bad a lot. It is far from uncommon and hard drives rarely fail at a convenient time.
The convenience of a HD camcorder is great but when the hard drive fails, you're facing losing a lot of irreplacable video.
Hard drives generally fail in one of two ways. Sometimes, they drop dead completely - sometimes you'll hear a click-click or clunking noise as the head attemps to move around. In that case, the drive is almost certainly toast and you won't get anything off without sending it to an (extremely expensive) data recovery company. Or, they start developing bad sectors - many drives that seem to be fine actually have a few bad sectors here or there. (It's a good idea to test your drives shortly before the warranty expires, as bad sectors will allow you to have it replaced under warranty.) On a camcorder, bad sectors would probably show up as glitches in the video.
The other thing to keep in mind is the repair cost - a tape-based camcorder has a decent chance of not needing repair for 10, 15, whatever years. The HD camcorder will need the HD replaced in probably less than five (quite possibly after only a few months, even), and if it's out of warranty, you'll obviously need to buy a new HD out of pocket. You may be able to buy a bigger one at that point, but the camcorder may only work with a certain size (or at least a range.)