Yes, you will need to setup XP with NTFS and set permissions properly on the system as a whole and remove the everyone group from that folder and make sure you have your rights added to it. or disable sharing on the folder.
Workgroups do not control access to any systems whatsoever, they just contain groups of PC's and Shares. You can access systems across workgroups, it's more of a network organization thing.
Users in Workgroup A should not always be able to access everything on systems in Workgroup B, but could have some access to some things across both, and vice versa.
It's all in the permissions....
Here is the basic overview of permissions in XP...
http://support.microsoft.com/kb/308419
You do need to be careful with Permissions, you can break things or completely hose a system all to heck.