Have you set it up for multiple users, i.e. so that you get a log on screen with a name and picture for each user?
If so then the 'make this folder private' tick box should be available to the person who is logged on for their documents only. Right click My Computer, select Properties, then the Sharing tab and tick the box.
To change another users you have to log on as them. If you just navigate to c:\documents and settings\another.user\ and right click on another users My Documents then the 'make this folder private' tick box is ghosted.
Thats the way it is on my XP Pro machine with two users set up anyway.
Hope this helps.