How to hide and protect my files?

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I used to use Hide Folders XP. Nice program, not very secure though. The best way to pretect files is to encrypt them. Search google for Cyptainer Cryle or search download.com for encryption programs.
 
I've used a several number of programs for hiding/protecting/encrypting files. They are all quite good, but the most simple, fast and although safe and _invisible_ hiding is provided with "HideIt!". That's just my opinion, but i think it's failry. I don't remember where exactly I found it, try to look for it at the developer's official site
http://www.guard-software.com
 
if you want maximum protection use DriveCrypt 4.20 to encrypt a volume on a second hard disk. You would use the encrypted volume to hold any sensitive data. Choose to encrypt the volume using Triple Blowfish cipher (1344Bit Hard Disk Encryption).

than use BCwipe with US DoD 5200.28-STD standard with default 7 passes to securely wipe your entire hard disk which contain the original data after backing up all your files. This makes sure no data can be recovered from the original source.

you would access your data using a mounted volume. A decipher key can be saved to a USB device such as a flash drive or you can use steganograpghy to hide your key inside a picture or music file.

You can also use use winXP EFS encrypting file system to encrypt your data. the downside is that this method of encryption is that it can be broken with a brute force attack. using Triple Blowfish cipher (1344Bit Hard Disk Encryption) ensure it is impossible for anyone to break including law enforcement and government agencies. There are no backdoors or other major vulnerabilities with DriveCrypt.
 
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