Doesn't XP allow you to make a folder private - XP Pro certainly does - and this version of the OS is the first that really had any good access privilige control according to the write ups. Never used it myself but I guess if you have individual user accounts you should be able to make folders visible/accessible to specific users.
On my configuration the option is available by right-clicking on a folder (in Windows Explorer) and selecting Properties. Pick the Sharing tab and tick the 'Make folder Private' box.
Hope this helps.