well - other than Hosting is not an appropriate use for XAMPP -
Is there any way to set up FTP access so users can only access 1 main folder for their hosting space?
Yes, and what you are referrring to is a function of the Filezilla FTP server, which is installed with XAMPP -- but not integrated with it in any substantive way.
You should refer to the FileZilla documentation, it is very thorough.
Good Luck