How to setup xp_cmdshell
Setting up xp_cmdshell securely can be a challenge. Generally only sysadmins can execute the xp_cmdshell. It is actually a very huge security hole if you choose to program your website w/ the sa account as you lay your database in the path for SQL injections. This can be typical if the originating server or application is one that you are taking over.
However, there will be instances where you will need to grant mere mortal users access to the xp_cmdshell, this can be done via the sql agent proxy, this gives you the ability to assing a generic nt user the ability to execute a limited range of file object manipulation. The following Microsoft article goes into the details for setting up your SQL Server agent proxy.
How to configure a SQL Server Agent proxy account to enable non-system administrators to execute the xp_cmdshell extended stored procedure in SQL Server 2000