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Using Windows Server 2008 R2, is there a way to encrypt a folder, not the whole disk using Bitlocker?

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Not with BitLocker. BitLocker does full disk encryption. You can use the native file encryption tool that been around for several versions of Windows Server. See Enabling File Encryption (MSDN).

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thank you Brian. can this encryption be broken if a hacker has physical access to the box (colocated server)? – Bobb Oct 9 '11 at 12:47
I'm not a security expert, but ALL encryption can be broken, some is just harder than others. Its a matter of mitigating risks. I believe they can unencrypt if they log in as administrator, with the password (not if they boot into a rescue disk and wipe the password, its protected from that). Pick a very, very good admin password. Does your CoLo allow people to access your physical server? Our has a rack that only us and the colo company has a key to open. – Brian Oct 9 '11 at 12:50
the problem is that the colo people might want to steal because the colo company has same interst as I do. sounds stupid but in some business areas this is easily the case. it seems the only hope is that the income will be relatively small so they wont do this. – Bobb Oct 9 '11 at 12:57
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