I have two PCs at home which are used by various members of my family. I want to connect them as a small network. Can I do this by loading Workstation on each machine, or do I need to load the server version of NT on one of them? If Workstation will do the job, will I be able to set up secure folders for each member of my family, and restrict access to sensitive areas of my hard drive?
Yes, you will be able to connect the 2 PCs with just Workstation installed on each, and for your use, that might be the easiest way. All you need is a network card in each, and a cheap hub. I would recommend, at least for your machine, that you format all your partitions as NTFS, since that will give you a greater security than with FAT or FAT32 volumes.
You can set up shares on each workstation to expose the directories you want to expose, and set what users can access those shares and with what rights (much as with share-level security in Win9x). Unless you make your userID and password available to other family members (or make it easy to guess), you should be secure enough (unless one of your children is a dedicated hacker).