I'm setting up a Web Server with OS X Server (10.2), and have been having problems with creating users with directories accessible from FTP. In the provided Workgroup Manager, you can set the home directory of a new user but nothing is created initially. Instead, it waits for the user to log in through AFP before creating it, which for a web server, is not exactly convenient.
Fortunately, Apple thought of this problem ... after several days of researching various materials, I found that you can run a program called "createhomedir" in Terminal and all the home directories will be created for you. Here's the steps I took:
Mac OS X Hints
http://hints.macworld.com/article.php?story=20021206060730840