You can replace the disk with a disk of equal or larger capacity. It should be from the hardware compatibility list (http://www.readynas.com/hcl
). Since you are using RAID-5 your volume is not expandable, but you can add an additional volume if there is unallocated space.
4.00c1p2 is approaching 4 (edit: oops, 4 not 5) years of age: http://www.readynas.com/forum/viewtopic.php?f=1&t=15059
That's incredibly old firmware. That firmware certainly doesn't support disks with greater than 1TB of capacity, I'm not sure about 1TB disks.
I would suggest you do the following:
1. Backup all data
2. Verify backup is good
3. If you wish purchase a replacement 500GB (or greater disk) and put this in the NAS. This will replace the dead disk and give you a redundant volume.
4. Upgrade to the latest RAIDiator (currently 4.1.7: http://www.readynas.com/RAIDiator_4_1_7_Notes
, note that 4.1.8 is in public beta at the moment and a production release should happen soon).
5. Do a System > Config Backup (keep zip file that is downloaded as this is what you need to restore)
6. Power down and remove disks (label order). If you did step 3 you'll be able to put the disks back in the NAS later (preferably same order as before) if something goes wrong with the later steps.
7. Insert 4 new disks from the compatibility list.
8. Do a factory default via the boot menu: (http://www.readynas.com/kb/faq/boot/how_do_i_use_the_boot_menu
9. Restore Config Backup
10. Restore data from backup
If you choose to backup to a USB drive connected to the ReadyNAS you should format the drive to use EXT3 (under Volumes > USB Storage in Frontview). You should also enable fast USB writes (http://www.readynas.com/kb/faq/performance/how_do_i_improve_write_speeds_of_usb_external_drive_attached_to_readynas
To verify your backup, I would recommend you edit your backup job's properties to use Rsync and run the backup job again. Take a look at Rsync backup to USB disk
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