Based on the XP file sharing guide at Microsoft, with the waffle and the blindingly obvious removed.

XP Home always has simple file sharing enabled.
XP Pro machines connected to a workgroup have SFS on by default.
XP Pro machines joined to a domain use only classic file sharing.

Turning SFS on/off in XP Pro:
Double-click 'My Computer' > Tools > Folder Options > View > Use Simple File Sharing

Simple file sharing uses 5 levels of access to share files:
Level 1: My Documents (Private)
Level 2: My Documents (Default)
Level 3: Files in shared documents available to local users
Level 4: Shared Files on the Network (Readable by everyone)
Level 5: Shared Files on the Network (Read/Writeable by everyone)

My Documents files are level 2 by default.
Levels 1 - 3 available to locally logged on users.

Sharing the root of your system drive isn't recommended (!)

If you upgrade your version of Windows or convert a drive to NTFS, check the status of your shares afterwards.

With SFS on, remote administration and remote registry editing do not work as expected, because remote users authenticate as Guest, and Guest accounts don't have admin rights.