Encrypted folder titles are green.When you encrypt a file or folder, that item's title becomes green.
You should, at a minimum, encrypt the Temp folder since copies of any documents you are working in can reside here.
Consider whole-disk encryption
For laptop users, an even better option than XP's selective encryption is whole disk encryption. Although these products can result in a performance hit, if you have sensitive information of any kind, you simply can't afford not to have the information encrypted. Full-disk encryption means that it doesn't matter where you store your files; they'll always be protected.