I would like to know if its possible to change permissions on a folder (and I guess all its child objects) and I need to do this in a workflow.
Any ideas how this is done. I can program the functionality if required?
If you're building a workflow in Visual Studio you can do this from the SharePoint API in the same manner that you would in any other type of code. There are no actions out of the box to change permissions with SharePoint Designer workflows, there's a custom activity on CodePlex that claims to be able to manage permissions on list items, but looking at the comments it doesn't look as promising as you might hope.