They should only be able to modify their own documents, photos, and music, which is what the "documents and settings" directory is for, not installing programs.
That's a pretty fine line to draw. Users can
"modify" their own "Documents and Settings" but not
"install" programs into their own "Documents and Settings"?
Many people would feel that installing is one form of modification. Which is exactly what Google Chrome uses this for: personal program installation. And not only Chrome, but there are other software that installs directory into a users personal directory.
And also the same for registry changes. "Normal users" should only be able to change their personal registry entries, including adding or removing software, but not system level registry values.
And Microsoft knows this and agrees. That's why this has been put into place in Vista and Windows 7. Starting with Vista, users are created with a "normal" user level that cannot change system critical files. I strongly recommend that you upgrade to Windows 7 if you share your computer with a 6 year old that can install and remove software.