If you have a Server 2007 where the users permissions are not inherited from the upper folder. try the following:
Right click the folder > Properties.
In ‘Advanced Security’ – double click one of the permissions that is not propagating down, you get the ‘Permission Entry’ properties form.
At the bottom of the form, there’s a tick box labelled “Apply these permissions to objects and/or containers within this container only”
If this box is ticked, it stops the permission propagating more than one layer down the tree. This overrides the ‘Apply To This folder, subfolders..’ setting.
As a result, on sub-folders, the ‘Apply To’ box sets itself to ‘This folder’ and greys itself out, and the permission in question doesn’t inherit any further.