[dnanian]

OK: the problem, then, is that your FileVault sparse image -- the thing the system has created to store your FileVault files -- is resident on top of a bad spot.

The problem is that it's hard to know what's damaged inside the image. And, since the image itself is hidden when mounted, it's hard to back up "normally". So...

If you can, make a "manual" backup (using Finder) of your Home folder first. You might encounter errors, but I'd be more comfortable if you got the files out of there, temporarily.

Once that's done, proceed with the Un-File-Vault. Hopefully it'll proceed without errors so that you can safely ignore the backup.

Once that's done, you can either backup, or re-FileVault and then back up: it's your choice. The system should relocate anything on a bad spot, so that you can proceed with the disk as-is -- but to be safest, it'd be best to un-FileVault, back up, boot from the backup, and then erase and ZERO your internal drive to get the surface tested and re-mapped. Then, restore.

I hope that makes sense...