Hi,
Did they use Appletalk? Or connect to your SME via Appleshare? (I only know OS9.2 and X.3). It's like neighborhood on windows, and they must see iBays like shared directories. When they clic on a directory they will be ask for their login and password.
When you said they're go to their homedir, it seems they use ftp.
If I'm right (they use an ftp client) try ftp chroot from dungog.net
I never have a transfer problem on OS 9.2 or X.3. But sometimes Mac can't see SME.