The permission on the Group Policy Container (the GPC, an Active Directory object) has been set to deny your read-level permission. The permissions on the filesystem object you've found (the "Group Policy Template", or GPT) can "come out of sync" with the permissions on the Active Directory object. (For some background, have a look at http://msdn.microsoft.com/en-us/library/aa374180(VS.85).aspx).
Fortunately, you can use a tool like ADSIEDIT to restore the permission on the GPC. Using ADSIEDIT you'll find a "groupPolicyContainer" corresponding to the GUID of the problematic GPO under the "CN=Policies" object of the "CN=System" object in the Domain NC of the domain the GPO resides in. (Install ADSIEDIT from the Support Tools on the Windows Server media, open it, drill into "Domain", then "CN=System" and "CN=Policies" and you'll find the GPC).
Using the "Security" tab of the "Properties" sheet for the GPC corresponding to the problematic GPO and use the "Default" button in the "Advanced" dialog to restore the default permissions.
If ADSIEDIT won't allow you to modify the permissions (probably displaying an oddball error message like "An invalid directory pathname was passed"), then likely someone placed a "Deny / Full Control" permission onto the object. The dsacls command with the arguments CN=GUID-OF-THE-PROBLEMATIC-GPO,CN=Policies,CN=System,DC=your,DC=domain,DC=com will report the permissions. Search for the errant "Deny" and "FULL CONTROL" entry and use the /R user-or-group-namme parameter on dsacls to remove the permissions associated with that user or group. If it's really messed up then you'll probably have to use the Windows Server 2008 ADAM / AD LDS version of dscals with the /takeownership argument to take ownership of the object).
Restricted Groups
Computer configuration > Windows Settings > Security Settings > Restricted Groups.
If you set that up with Using the "Members" Restricted Group Portion of Policy, it will remove anything else that is listed locally. It will only apply the group that is in your policy. You can read more about it here
Best Answer
Group Policy should handle this without problems. Example I have for locking down the C: root folder on Windows 7:
Computer Configuration > Windows Settings > Security Settings > File System > %SystemDrive%\