Vishnu,
You are correct, an applet cannot access the local files/directorys (without some major help... signed applets, capability classes, etc.), and overall applets are not meant for that sort of program...
you should not try to write an applet that does what you described, why should the user need to run a web page to look at their local files? However, you should be able to write an
application that does what you described with little problem...
HTH,
-Nate