EFS doesn't fully encrypt your HD, however it does encypt particular folders as you set. A good example maybe your My Docs, Desktop and some of the application data stores. (Such as a database file for example)
EFS is a piece of cake to setup too, however if you were to ever forget your password you can kiss the files goodbye.
People have mentioned some software that do the whole hard disc, but that may or may not be overkill depending on your requirements vs. cost. Probably not much use but FYI Windows Vista contains full drive (well, partition) encryption too. (But as it's not out retail till nearly Feb and I doubt you'll be jumping on it as soon as it's out it's not much use!!!)
If you do need to keep these files safe and secure then to be honest you do need to do more than password protect the application. Most apps can have a cracker ran against them and application level secure for passwords isn't traditionally great.
Based on what you've said I would recommend EFS. Things like recovery for EFS are a bit beyond the scope of this thread but there's a load of information on the MS site as the Windows XP / Windows 2003 Server forums.
I would go along with the idea that keeping the machine secure internally is also very important. Windows Updates, daily updated AV, daily backups that you randomly test. Also look at this scenario:
One Administrator account. V. Hard password with it kept in the safe / somewhere secure.
Create a seperate user account for you to use on a daily basis. This should NOT be an admin account.
Also things like use IE7 or Firefox (rather than IE6), do a weekly spyware/adware scan, enable Windows Firewall (and make sure you are using SP2!), never send anything sensitive over email without encrypting it first etc.
Loads of best practices but I imagine as you take security pretty seriously they are already implemented / you know about them.
Good Luck,
Steve.
"They have the internet on computers now!" - Homer Simpson