Em - guys if he has XP and his drive is NTFS he should have no problem encrypting a folder. What version of XP do you have?
Do - Start - Run - winver and tell us what it says.
Be warned that if you encrypt a folder and your system crashes it's next to impossible to get the contents back even if you reinstall XP as the encryption algorithm includes the Security Identifier (SID) of your account so even if you delete your account and make a new one of the same name it still won't work.
How to Encrypt a Folder
NOTE: You can encrypt files and folders only on volumes that use the NTFS file system.
1. Click Start, point to All Programs, point to Accessories, and then click Windows Explorer.
2. Locate and right-click the folder that you want, and then click Properties.
3. On the General tab, click Advanced.
4. Under Compress or Encrypt attributes, select the Encrypt contents to secure data check box, and then click OK.
5. Click OK.
6. In the Confirm Attribute Changes dialog box that appears, use one of the following steps:
• If you want to encrypt only the folder, click Apply changes to this folder only, and then click OK.
• If you want to encrypt the existing folder contents along with the folder, click Apply changes to this folder, subfolders and files, and then click OK.
The folder becomes an encrypted folder. New files that you create in this folder are automatically encrypted. Note that this does not prevent others from viewing the contents of the folder. This prevents others from opening items in the encrypted folder. For example, if another user attempts to open a Microsoft Word document that has been created in the encrypted folder, the following message appears:
Word cannot open the document: Username does not have access privileges
(drive:\filename.doc)
If another user attempts to copy or move a document from the encrypted folder to another location on the hard disk, the following message appears:
Error Copying File or Folder
Cannot copy Filename: Access is denied.
Make sure the disk is not full or write-protected
and that the file is not currently in use.
An alternative as T-Rexx pointed out is TrueCrypt as is using Winrar to create a password protected file that encrypts the file names.