Problem with isolating users in FTP(IIS 6)

Greetings,
I am having a problem getting my users to authenticate(username/password doesn't seem to be approved as dialog box reappears)to my ftp site. I've created user accounts for them and also created a localuser folder for them. Permissions have also been set. My real ip has been entered along with the default of port 21. The users get the dialog box to enter in their username/password when they go to IE and type in URL . Now the question is do they need to type in URL where 'cars' is the root folder or do they type in URL whereby 'john' is the home directory under the localuser folder which is under the 'cars' folder. Also, my win 2003 server is not on a domain. Currently, it is in a workgroup as i will join it to a domain later. Any help would be grateful!

p.s: i am beginning to think that you have to be in domain as opposed to a workgroup for this option(isolation of users) to work.

You can make the serevr a stand alone DC "Domain controller"
Click start > run > type DCPROMO

after this is done you can run AD "Active directory" add your users in AD and then you can set the user home directory in IIS for the FTP


Hope this helps