Casey;
You don't password a specific file or folder, you password the
profile.
In any case, you need to be using NTFS and not FAT32.
To check:
Open My Computer, Right click the drive, click Properties.
What does it say by "File System"?
To convert to NTFS:
http://aumha.org/win5/a/ntfscvt.htm
Data should be safe, back-up important data just in case.
Follow the appropriate link:
Windows XP Home:
http://support.microsoft.com/?kbid=307286
Windows XP Pro:
http://support.microsoft.com/?kbid=307874
Password all accounts with Administrator access including the default
Administrator.
Give all other users access only to Limited profiles.
You must tightly control all Administrators because Any Administrator
can do and undo anything any Administrator can do.
Take appropriate precautions to prevent losing the passwords.
You should use an Administrator profile for Administrator work.
Use a Limited profile for all routine work.
See also:
http://support.microsoft.com/?kbid=308418