I came across a programme called Tformat which is developed by an indian and which available free. This programme formats bad sector floppies and make them usable. It also increases the size to 1.72 MB from 1.38 MB. This has worked for me. here is the link
h??p://ieeecrce.tripod.com/innovations99/tformat/
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yes its a great utility. i am using since last 3 years and i saved my no. of floppies. It also gives higher storage style. Much better than windows format utility and can also repair damaged floppies too.
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Strange, I cant find a use for floppies nor do I have one to recover/save... :s Its been 4 years since I brought my new comp, my new sony FDD hasnt seen even a morsel of a floppy