Will initializing disk make data unrecoverable?

No, don't initialize it because you'll wind up with a blank hard drive or an even more garbled one. You might have a drive with failing/failed circuitry or you might just have some corrupted data.

I would suggest first trying to restore the drive's MBR (Master Boot Record), using this or any other instruction sheet you can google. http://pcsupport.about.com/od/fixtheproblem/ht/repairmbr.htm

You'll need the drive back in your friend's computer, and you'll need the XP CD.

If that doesn't work, I think the next step is a data recovery service, though of course, that's expensive. Good luck!

Short answer, 'No, initialization shouldn't make the data unrecoverable' but probably won't make it any easier to recover either.

As noted above:

I didn't initialize the drive but used the free version of 'Partition Find and Mount' which let me mount the drive read only. Copied the data over OK (free version is speed limited so this takes some time).

I tried initializing the drive when I was done and 'F&M' still let me mount the partition and copy data - so it seems that initialization doesn't make the data unrecoverable.

When you see the disk as "Unitialized" make sure it is not a truecrypt encrypted volume on the disk. That may be why you can't see it. You have to mount it with the truecrypt "Select Device" option.

Another note - I've seen it before where the disk shows up as "not initialized" and prompts for initialization. I simply eject it and plug it in again and it works fine, showing up with regular drive letter(s).