Folder is locked and works as expected, but I can still see and open the file in "All My Files."
Can you please try to disable spotlight for this folder (click on the small "i" near the folder name in espionage window) and you will see the option on the window which shows the folder settings, and then try again. Please try it with a new folder as I do not know when will the spotlight cache be flushed to reflect the files which are not there any more.
Thanks
Zsolt
Thanks. New problem is that photos from this folder can still be seen in iPhoto.
Under the advanced tab of the iphoto preferences there is an item "copy the photos into library" is this checked or not?
When you right click on one of the photos which are visible and should not be, and select "show file" where is the photo located, in the protected folder or somewhere else?
Rgds
Zsolt