The password option is no longer available in XP (or Vista), you can right-click on the folder - choose
properties - choose
advanced - and choose
encrypt contents to secure data - But that only works if you have a user-account for each user if all uses the same account (like the root account) they can all use that folder.
If it's something you really want to keep prying eyes from use Truecrypt
http://www.truecrypt.org/ - then you can make a virtual encrypted disk within a file and store your files in there. There is a very good tutorial on their site - so it's quite easy. And security-wise it's almost unbreakable (unless you have access to NSA's mainframes at Fort Meade

)
Trucrypt uses either AES-256, Twofish or Serpent or all three at once if your really paranoid.
You (ofcourse) have to have a good password (and not write it down) for this to make any sense. My advice would be to make a 25-30 character "pronouncable" but
RANDOM and importantly
NOT IN THE DICTIONARY password and memorize it. This page has a good generator for that:
http://allanon.elfhame.net/apg.php
Regards
RabidSquirrel