For quota implementing on a folder level you will need Windows 2003 R2 Standard or the Enterprize version. You will need to install SFRM from add-remove program/ windows components in the control pannel. The files are on your second cd.
To Control folder size limits you can also use a third party software called SpaceGuard SRM.
I have also see users on older revisions of 2003 and 2000 use partitions and quota management on them. Not ideal but it will work.