I tried the module...gives me a 'Script halted' status after about 30 sec execution.. I did change max timeout settings in php.ini to 600 but it still returns with the same.

As you know, PHP scripts are stopped when they run too long -- when the run time exceeds the maximum script timeout setting.

This can be a problem for net2ftp users because it could interrupt a file transfer.
Therefor a shutdown function is registered (register_shutdown_function).

On *nix this shutdown function is only called when the script is stopped after the timeout. On Windows though this shutdown function is always called, even if the script only ran for 3 seconds.

To solve the problem on Windows, the script run time is measured, and the warning message is only displayed when it exceeds max_execution_time - 1 second.

The relevant portions in the code are
index.php: register_shutdown_function("shutdown");
/includes/filesystem.inc.php: shutdown()

How about authenticating users directly from their portal user accounts ? - instead of having them login again ?

net2ftp doesn't store any username or password. It just passes them on to the FTP server.
So to have the same password, there are several options:
-- More secure option: each XOOPS user has the same username/password in XOOPS and on the FTP server. This would require to synchronize the passwords. Obviously this would only work for your own FTP server, not for all. It is possible to restrict net2ftp so that users can only connect to one FTP server -- see settings_authorizations.inc.php.
-- Less secure but easier option: once logged into Xoops, a user could access net2ftp without having to enter anything -- no username, no password. It is possible to create a URL which brings you directly into one net2ftp screen; look at the Bookmark functionality of net2ftp. Normally when using a bookmark a popup window appears asking for a username/password, but this can be eliminated (some code must be changed, but that's easy). If you're interested in this option, let me know.

What I want to do is set a user's access permission to one directory (e.g. freehost.mysite.com/username/)