I have a computer running Windows 2000 Server, with a user account for each person in Active Directory. Each person has access to their departmental folders, as well as a personal folder. My question is this: when Person X is logged on, if they try to access Person Y's shared folder, they get a message that says "\\server\Person Y is not accessible. Access is denied."

Instead of just denying access, is there a way to configure the server to prompt for a name and password for the folder?

Did you change Security from Everyone (Default allows access in 2k) to just an individual? If that is the case, you won't get access.

Create a security group if multiple people will be accessing each others folders. Add them to the security group and allow persmissions for that security group to each share.

You could manually add each person to the shares as well.

Personal folders (i.e. homedirectory) should only be accessible for the person in question and some services like backup, virusscanner and quota mangers. Other than that nobody should have access to anyones homedirectory

If you mean department folders set up user groups and add eacht person to the appropriate group(s). It's a lot easier to manage it this way than add indrividuals to have access to each folder.