It's easy, just a few steps and your folder will be hidden

First step :
Create folder, name it using alt+0160

Second :
A folder will be created with name 1 space, then right click the folder, properties, customize, change icon, see for a blank icon and press apply

Enjoy

Video tutorial uploaded by me
http://www.youtube.com/watch?v=EW8dD3KeUJk

Have fun.

You don't know how much you've helped me. £100 was resting on finding out how to do that

For some reason, whenever I type Alt+0160 into my computer, it won't change the folder name. If anyone else is having this symptom, here's another method:

1. Open Character Map (Start > Accessories > System Tools > Character Map),
2. Look for a blank box, it should be five from the top and six from the right.
3. Click "Select" then "Copy".
4. Now follow the steps in the first post but press Ctrl+V instead of Alt+0160

I have to say that this is a very smart method of hiding files, but it has one caveat - there will be a gap in the file listing wherever the hidden folder is placed, so you may want to order your folders so the hidden one is the last item in the folder.

Ah yes thanks gameratheart, I forget to tell that one. Don't arrange the file by name or it'll show a gap

Alas, for those using Windows Vista, you need to remember that the blue hover over the icons won't disappear most likely.

hmm.. is there any way or tweak to disable those blue hover icons?

Mhmm, this is not working for me. At first I thought that this would not work due to the fact that I had no idea where the customize button was located, but guess what; I found it!

So now my folder have a blank image, but the "Alt+0160" is still there. Anyone who can help me with this lovely problem?

try typing the 0160 with numlock numbers (the right side number of the keyboard). I forgot to tell this as I can't create ASCII code with regular number key.

Good tutorial, very useful. I'll be using this.