If you refer to the original Windows Mobile 5.0 documentation (or the Intellisense) when using this component you’ll notice it has a property called LockDirectory which is supposed to prevent the user from browsing outside of the folder you specified in InitialDirectory. To cut a long story short this property is not implemented and setting it will not affect the behaviour of the dialog. The online MSDN documentation has since been updated to indicate this.
When faced with this problem my first thought was to look at the native API which this component uses (GetOpenFileNameEx) and P/Invoke it since the documentation still indicates that there is a flag to achieve this behaviour. However as it turns out this too is unimplemented. It was a late change in Windows Mobile 5.0 and hence the SDK and documentation were innacurate.