XP PRO: In Windows Explorer, go to Tools, Folder Options, View and uncheck Use Simple File Sharing. Now, when you right click on a drive, folder or file (on an NTFS partition) and select Properties, you'll see a Security tab. Here you can assign or deny permissions based on user name or user group membership.
XP Home: By default, you can only make files and folders under My Documents "private". This is done by right clicking a folder or file and selecting Properties, Sharing. To change the permissions on other folders, you need to boot the computer to Safe Mode and log in on the built in Administrator account. In this mode, you'll see the Security tab in Properties, and you can assign permissions based on user name or group membership.
HOW TO: Set, View, Change, or Remove File and Folder Permissions in Windows XP
http://support.microsoft.com/default.aspx?scid=kb;en-us;308418
HOW TO: Set, View, Change, or Remove Special Permissions for Files and Folders
http://support.microsoft.com/default.aspx?scid=kb;EN-US;308419
HOW TO: Disable Simplified Sharing and Password-Protect a Shared Folder in Windows XP
http://support.microsoft.com/default.aspx?scid=kb;EN-US;307874