PLM,
I'm running WinXP Pro on one system and like you I've got a couple of children. I have created accounts for each family member, the children are "Users", the adults are "Power Users". None are administrators. In fact I have renamed the adminstrator account (work habit).
This way the boys can do little damage and can't install / delete programs - even I do not have system-level access just in case I tread carelessly on the internet. I use the admin account only when needed.
Again, I have created some folders to which only I have access, using NTFS security. If you want to grant access to more than one person you can either create a local group, add users to it and assign access rights to the group, or explicitly grant access to each user individually.
Note the difference between sharing and security - sharing is really about making a resource visible over a network, while security is about what access rights users have to the resource. On a single system you can ignore sharing.
Using NTFS security to control access to folders and files is all you should need - unless your children are going to spend time cracking your passwords or hacking the SAM (Security Access Management) database and resetting the admin password. Actually, that is laughably easy, so maybe you should look at encryption as well!
SD