NAS540, Bad disc or just full

At the moment you are using only 1 disk. The other 3 have the status 'hot spare', which means they are only sitting there, and doing nothing. To be honest I have no idea how you got it this way. AFAIK the firmware doesn't support creation of 4 disk raid1 arrays. And the bad disks can be kicked from the array, when they misbehave, (the raid manager doesn't look at SMART, it will drop a disk if it cannot read/write a sector), but then they shouldn't show up as hot spare.

The raid implementation on that NAS is not really well. As your array is degraded, a hot spare should automatically be used to resolve that.

The two bad disks are not I can tell you it's really bad. 11920 reallocated sectors is bad, and the disks cannot be trusted.

Raid5 could be a more logical choice. With 4 2TB disks that gives 6TB usable space. But if you would loose 2 disks, like you did now, all data is lost.

AFAIK the firmware doesn't support conversion from raid1 to raid5, so the only way to get it is to copy the data to extern, create a new, empty raid5 array, and copy it back.

do I need to replace disc 2 and 3, are you saying that these two are completely damaged?

From your screenshot I can see disk 3 has a 'reallocated sector count' of 11920. That is high. A 2TB disk has around 4000000000 sectors, and it's not uncommon that some of them fail, over time. In that case they are 'replaced' by a spare sector. (Not really replaced, only administratively). That is what that counter means.

The disk is still functioning, and theoretically 11920 damaged sector shouldn't have to be a problem, but I wouldn't trust that disk. Seeing the disk has only 855 power on hours, you either got it with a lot of damaged sectors, or it is accumulating them with more than 10 sectors an hour. Each damaged sector can kill your filesystem, depending where it's used for.

So temporarily should I repair disc 3 with disc 4?

Or should I just copy files over to external and start from scratch and create raid5?

If your data is valuable, make a backup now. The volume only exists of disk3, which can fail any time. That could be done by forcing the firmware to repair the raid volume using disk 1 or disk 4. 'Repairing' here means that all 2TB is copied from disk3 to the new disk. When disk3 fails to read a sector, the array will go down. (Depending on the health of disk3, it might still be possible to recover the data, but there is no handy firmware function for that. It has to be done manually from the command prompt).

I would copy the data to an external disk (which you should have anyway, because raid is not a backup) because you then can copy the most valuable data first.

The fourth disc is a new one I bough about 6 months ago, otherwise I have only had 3 discs.

Really? The first 3 disks have a powerup time of around 900 hours. The fourth disk has more than 9000 hours, which is more than a year.

Your disk 2 is also bad.

And yes, it's fairly easy to create a raid5 array. The webinterface just gives you that choice when you create a new volume on your new disk 3.

You can also create a raid5 array on 3 disks. In that case the usable space is 4TB.

You can create a 3 disk raid5 array. But I don't think the firmware allows you to convert that to a 4 disk raid5 array later. Low level that's no problem, (although lots of data have to be moved), but I don't think it's implemented in the webinterface.

But I never tried, and I can be wrong, here.