Securing Windows XP Home Edition

Use Private Folders To Protect Data: As mentioned in Step 1 above, Windows XP Home uses something called Simple File Sharing for sharing files, folders and other resources. When you mark a file or folder as Shared, anyone who can get to your computer can access the share and the data it contains because of how Windows XP Home uses the Guest account and its blank password (unless you have followed the information in Step 1) to grant access. Windows XP Home does not allow for more customized file and folder sharing like you would find in Windows 2000 or in Windows XP Professional (with Simple File Sharing disabled).
Windows XP Home does offer the polar opposite of sharing though- marking a folder Private. If you mark a folder as Private the contents of that folder and any sub-folders will be accessible only by you.
To make the most of this feature it helps if you keep all of your personal or confidential data in one place so that you can just mark the one folder as Private rather than having to scour the computer looking for various folders you might want to keep Private. Your User Account folder under Documents and Settings which contains your My Documents folder, your Favorites and other personal configuration data for Windows is marked Private by default in Windows XP Home.
To mark a folder as private you need to right-click on it and select Sharing and Security. On the Sharing tab click the checkbox that says "Make This Folder Private". If the folder is owned by another user or by the operating system itself this option will be grayed out. You may also see a checkmark inthe box that is grayed out if the folder is a sub-folder of a different folder already marked as Private.
Use Limited Accounts For Everyday Use: Windows 2000 and Windows XP Professional offer a number of different user account types and also provide a means to create your own custom user account types. Windows XP Home essentially offers two choices- Administrator and Limited. The Administrator account has essentially full control over anything and everything on the computer. The Limited account can use the computer, but is extremely restricted in its ability to install software or alter system configurations in any way.
One of the primary reasons for using the Limited account is to protect the system from yourself. It's possible that a family member with Administrator access can accidentally change or delete critical information on the computer. It is also possible that someone with an Administrator account may have their account hacked or become infected with a virus or worm of some sort. Typically, the attacker or malware will be able to wreak havoc on the system using the access privileges of the account that has been compromised. So, it makes sense to save your Administrator account for when it is needed, but use Limited accounts for everyday use by most users.
To choose an account type in Windows XP Home click on User Accounts in the Control Panel. Once you select a user you can click on the "Change My Account Type" button. You will be able to choose between Administrator and Limited and can see a brief description of the abilities of each account type. You are required to have at least one Administrator account, so be sure to leave or create one- but save it for use when necessary and stick to using Limited accounts wherever possible.
5. Upgrade to Windows XP Professional: I realize that switching operating systems isn't exactly helpful for securing the one you have. However, it is truly my best recommendation for someone using Windows XP Home edition that wants to ensure a high degree of security on their system.
The Simple File Sharing "feature" which doesn't let you protect individual files or select which users can simply read the file vs. which ones can change or delete it turns out to be a feature you may not want if you're trying to be secure.
Windows XP Home lets you mark folders and their data as Private, but does not include support for EFS (Encrypted File System) which you can use in Windows 2000 and in Windows XP Professional to encrypt your data for even more protection from unauthorized access.
These are just a couple of reasons. The bottom line is that it seems that Microsoft did not have security in mind when selecting the features and options to include in Windows XP Home. Users who truly want to be secure (and don't want to switch to Linux or another operating system entirely) should move to Windows XP Professional.

N.B: belief are purely personal