I don't think you can password protect folder with the newer Windows products (2000/XP/2003) but if you use an NTFS file system and create profiles you can use the security settings to lock users out.
Download the free Winzip from http://www.winzip.com/ then after you install it will give you the add to zip functionality when you right-click a file or folder. When you do this it will zip up the file/folder to whatever-name-you-name-you-gave-it.zip and it will also give you a chance to password protect it. Delete the unzipped files/folders to give your secret files/folders in a zipped file.