Severe Problems (Do not want to pay $50 for replacement)

I have had my iPod for a week, haven't let anyone borrow it, haven't dropped it once. It worked all day today until about a quarter to six 'o clock, when I turned it on and got a picture that looked like an iPod with a sad face and a triangular exclamation. That's all it's doing, and all you can hear is the hard drive making a strange 'click-'click-'click noise, then a grinding noise, then it whirs, and turns back off, I have tried resetting and restoring, I have a year warranty, but I cannot afford the $50 replacement fee for a new iPod.
ASUS P4S533   Windows XP Pro  

Where do you get the idea that it will cost you $50 for a replacement iPod?
You've only had it for one week so return it for an exchange.
The sad iPod icon is a hard drive issue.

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