Don't use Windows, but the following works on linux ... see no reason it shouldn't also on Windows.
Turn on File System repo in Moodle and choose settings for who can create, etc.
Then in moodledata/repository directory create an 'alias/symlink' (guess it's still called 'shortcut' in Windows) in that repo directory by a shortname {studentshare) that points to C:\Shares\StudentShared\
Those can be seen in Moodle but not uploaded to in Moodle. All that can see at that level can see *all* - but up to OS operating system privs at that point. Might see and be able to access others files to download so go slow and check out what users can see/do.
If your web service is set to follow symlinks don't ever erase the alias/symlink via web service ... remove the shortcut/alias/symlink via command line.
'spirit of sharing', Ken
