THE SCARY PROBLEM... PART II (with data)

Ok, so, I haven't written anything to this drive and I haven't committed any changes that the recovery softwares offered due to the promisse that maybe I can still recover my files.

All apps keep saying that the disk has 54 megs used but the files inside the directory are not there.

Yesterday I tried window's chkdsk on the drive and it turns out it gave me more information that any of the other tools I had used. At least it said that there's an error on the drive. This is the information I got from it:

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The type of the file system is FAT32
Volume serial number is 412A-875B
Windows is verifying files and folders...
Unrecoverable error on folder \01 MAIN BACKUP
Convert folder to file (Y/N)?
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The thing is, I don't quite understand what this means. I mean what's gonna happend if I convert the directory into a file?!! Is that any good or what? I mean, can I recover the files from that file or what's the idea behind making the folder a file? I closed the DOS promt without making any changes, so I assume the drive is still as it was after the error happened.

How bad is this? Is there any chance that I get my files back?

Thanks.