To enable secured folders for a Virtual Directory in WebSitePanel, follow these simple steps:

1. Create a Virtual Directory
2. Enable Directory Browsing on Virtual Directory (This is such that we don't receive a 403 forbidden error while testing. Without directory browsing, 403 forbidden error is shown when no default file is found after successful login -- which can be confusing but means everything went properly.)
   
3. Switch ASP.NET to 4.0 Integrated (Integrated is required for secured folders)
   
4. Turn on Secured Folders (this turns off integrated windows and turns off basic authentication automatically. It only leaves Anonymous authentication -- as it should be for Secured Folders.)
   
5. Make a new Secured Folders Group, User, Folder, and assign the group to the virtual directory.