Hello,
I'm trying to make a server more secure. Here's the current situation on it...
All Virtual Hosts on it have their own user, their own group, and the server use ran on the user nobody. This is fine, except when each user logs into the server with ssh. This allows them to read the source of each file on the server as they will. I don't want them doing that.

I want the user nobody to be able to read the files, and the user to read them. I'm having a bit of trouble getting it to work right though, but it is most likely a really dumb reason o_0;

For this example, lets have a user named 'user' (Original, huh?)
I added the group user to the groups in nobody
nobody now has groups of: nobody, user
user still has only the group user
user's folder allows only the owner, and group to read the folder. not 'others'
nobody still can't access the folder, even though it is in user's group

I've also tried adding the group nobody to the groups of user, but that doesn't work either :/

So, how can I make it so only these two users can view the folder? The user, and nobody.

Theres no unusal bits set for permissions?

What do you mean? :/
If you mean if I have changed something with the permissions system-wide, no, I haven't.. o_0;

I mean like an suid or other bits are set? Also make sure the parent directory is also readable.

It is readable
I'm in the group, and the folder has group permissions set to read, so what would prevent me from reading it?

Try adding execute permissions to the parent directories. ( Messing about with permissions myself this seemed to work. ) I think the problem is not having permission to execute a command on the directory.

I have 'others' set to execute... and read...

Having others set to execute and read will allow anybody to execute or read the file.

nobody is normally used as an alias for a root user logging in from another system. The group 'users' may be a better group to use.

I know that it will, someone recommended that I set the parent directory to readable, and it is.

Those are examples, I'm testing it on my computer with a fake account and my user account.
I'm part of the group, I know that.
But, even with group permissions set to +rx, I can't read the test directory...
Why?

In linux, if you are the owner of the file, and the r permission bit isn't set for 'user', a read attempt will fail even if you are a member of the group with read permission.