If so do they work well? I seem to recall that quotas under W2003 work on a per-volume basis which limits there usefullness. Is W2008 more flexible, maybe allowing per-folder quotas?
I've never used the feature, but Windows Server 2003 R2 introduced per-folder quota functionality via File System Resource Manager.
Can't say about 2008, haven't tested it thoroughly; but for 2003 R2 it remains the same. I still use it, but not an effective way to limit user/ folder size.
Any better solution?
FSRM - File Server Resource Manager in 2008 and later is very flexible and will allow you to set up multiple quotas using many different templates if you wish. You can also get it to warn via email when a user reaches certain % and/or block new files at certain limits. It's a really good solution.