An article describing how to set up the user isolation feature of IIS6.
I also found this on Microsoft Technet:
Isolate Users Mode
The Isolate usersmode determines a unique home directory for each user derived from the user name. The home directory of the user is treated as a root directory for the user, and the user cannot navigate or access the physical file system outside of the root directory. If users need access to dedicated shared folders, then you can establish a virtual directory.
User home directories are located in a two-level directory structure under the FTP site directory. The site directory can reside either on the local computer or on a network share. When a user accesses the FTP site, the home directory is determined in one of three ways:
For anonymous users, the home directory is LocalUserPublic under the FTP root directory.
For local users, the home directory is LocalUserUserName under the FTP root directory.
For users that log on with DomainUserName, the home directory is DomainUserName under the FTP root directory.
The user home directory must be created before the user logs on. If the directory does not exist when the user attempts to connect, the connection is denied.