Contrary to the popular opinion that "Advanced" file security is only available with WinXP Pro, it is also available with WinXP Home edition as well. Specifically, I am referring to the "Security" tab that is available in XP Pro in the properties menu of any file or folder when "Enable simple file sharing" is unchecked in the Tools>Folder Options>View applet. This "Security" tab is the same as WINNT and WIN2K which allows you to use advanced options for file/folder security that apply to groups and users such as Read,Write, Execute, etc. Although Microsoft claims that this is not available in XP Home it is!
First, NTFS must be your file system, this will not work with a FAT file system. To enable "Advanced" security permissions in XP Home simply boot into safe mode, rt-click any file or folder, and now you will have the "Security" tab - just as in XP Pro! Simply make your changes and reboot into normal mode. This is very useful when you have 'limited' users on your computer and they are unable to run certain applications as a limited user - you can simply boot into safe mode, change the permissions according to each user, and reboot! The advanced tab is even there that will give you even more permission options such as inheritance, etc.
For more information on how to convert your file system to NTFS Click Here
For information on how to set the permissions using command prompt instead of safe mode Click here