In the event of a drive failure, Time Machine has the ability to create a bootable backup. It takes some preparation, however, which must be done before disaster strikes.
Using Disk Utility, create a partition on the drive you are using for Time Machine (see Disk Utility Help for instructions on how to do this without erasing your Time Machine backups). The new partition must be large enough to hold the contents of your computer’s drive, plus 10 or 20Gb of elbow room. If your system weighs 85Gb, then the new partition should be 100Gb or so. Leave this partition blank, and go on with your life.
Now, when (not if!) your Mac’s drive fails, do the following. Make sure your Time Machine drive is plugged in and powered on, then insert your Mac OS X Install disc and restart your Mac. In the installer, choose Utilities » Restore System from Backup. Click Continue in the resulting dialog, then select your Time Machine volume. Choose the Time Machine backup that you want to restore (probably the most recent).
Then, when you are prompted for a destination volume, choose the empty partition you created on your Time Machine drive. Time Machine will create a bootable duplicate of your system, which you can use until you replace your faulty main drive. When your Mac is healthy again, you can reinstall your system from the backup drive using either Time Machine, or Migration Assistant (from the new bootable volume you created).
Note that this solution hinges on the ability to get an install disk inserted and booted, on your broken Mac. The paranoid obsessive backer-upper will also want to have a (SuperDuper or Carbon Copy) clone of his drive stashed somewhere.