New RAID Setup. What is best?

Hello,
I previously had a RAID 5 setup on 3 WD RE3 1 TB drives and had it partitioned as 2 - 300GB OS drives (Windows 7, Server 2008 Dual Boot) then I had a 1.8 TB partiton for storage. It worked very well until an RE3 drive began to fail. I was able to recover it once, but now it has failed again, and while rebuilding, I rebooted and knocked out a second drive. Now I am recovering data, and have a 5 year warranty on the drive tat has failed twice whcih I will have replaced by WD. I bought another identical drive which has never been unpackaged. I also have a WD 150GB Velociraptor that I was using as page file storage. My system is Core i7 with 12 GB of RAM on an EVGA X58 3 way SLI MB. 2 questions - 1. If I setup 4 - 1TB drives in RAID 5, and 2 fail, can the existing 2 recover them, or does RAID 5 only tolerate 1 failed disk regradless of how many are in the volume? and 2. Should I change my setup? and what would you guys recommend? I had no problems with my setup for about 14 months. It was fast, recovered from errors on it's own, never lost any data, etc. SHould I do the same setup? should I run the OS on the Velociraptor, and use the 4TB volume for storage? or should I rebuild the RAID 5 volume the way I had it only adding the additional 1TB drive? I want speed and redundancy. I also have a 2TB WD my book external drive with 750 GB free. Please give me some advise so that I go with the best option, and don't have to recover this way again. Thanks!

1. RAID 5 tolerates a single drive failure. The more drives, the higher the risks of losing the whole array.

2. I'd still use RAID 5, but I'd also replace failed drives instead of trying to use them again. You could also configure a RAI 0+1 or a RAID 10, but you'll lose storage space.

Why did your RAID 5 have to recover from errors? It shouldn't have errors unless there's a hardware issue or there's a power failure and your UPS fails to shut the system down properly.

Testing the Windows 7 backup costs you nothing. If it doesn't meet your requirements, then you can certainly try commercial software like Acronis TrueImage, etc.