Will initializing disk make data unrecoverable?

No, don't initialize it because you'll wind up with a blank hard drive or an even more garbled one. You might have a drive with failing/failed circuitry or you might just have some corrupted data.

I would suggest first trying to restore the drive's MBR (Master Boot Record), using this or any other instruction sheet you can google. http://pcsupport.about.com/od/fixtheproblem/ht/repairmbr.htm

You'll need the drive back in your friend's computer, and you'll need the XP CD.

If that doesn't work, I think the next step is a data recovery service, though of course, that's expensive. Good luck!

Short answer, 'No, initialization shouldn't make the data unrecoverable' but probably won't make it any easier to recover either.

As noted above:

I didn't initialize the drive but used the free version of 'Partition Find and Mount' which let me mount the drive read only. Copied the data over OK (free version is speed limited so this takes some time).

I tried initializing the drive when I was done and 'F&M' still let me mount the partition and copy data - so it seems that initialization doesn't make the data unrecoverable.

I was posed this question today, when I attached a SATA disk via a USB adapter. Unfortunately, 'Partition Find and Mount' did not seem to like the USB interface.

Windows 7 was much happier when I opened up the PC and attached the drive directly to the motherboard using a SATA cable. Both partitions on the drive had been assigned drive letters and I was able to gain access to the data needed.

When you see the disk as "Unitialized" make sure it is not a truecrypt encrypted volume on the disk. That may be why you can't see it. You have to mount it with the truecrypt "Select Device" option.