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They shouldn't make you return the hard drive. Unless the problem itself is caused directly by the hard drive (To check it just take it out then try turning it on and seeing what happens.) but is highly unlikely since I think and HD failure would result in your whole 360 crashing but just a loss game saves etc.
Anyway if you get it repaired by Microsoft they will tell you to remove and keep the hard drive when you send it back to them.
I think and HD failure WOULDN'T result in your whole 360 crashing but just a loss game saves etc. Tamashii-sosaku
Sorry just had to correct that.
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