Restore the Folder to Internet Explorer
If you found the Favorites folder and it contains the items you thought were lost, the folder needs to be pointed back to Internet Explorer. Before moving on, it is imperative to mention that you should not edit the Windows registry unless you are comfortable doing so. Deleting or altering the registry incorrectly can seriously damage the system. If you are not confident about taking these steps, enlist the help of a professional.
If you are ready to make changes, open the Registry Editor in XP by clicking Start and clicking Run. Type regedit in the Open field and click Go. If you are using Vista, simply click Start, type regedit into the Start Search field and press Enter.
The Registry Editor will open. Find Favorites under the following Registry keys:
HKEY_CURRENT_USER\Software\Microsoft\Windows\Current Version\Explorer\Shell folders
HKEY_CURRENT_USER\Software\Microsoft\Windows\Current Version\Explorer\User Shell folders
HKEY_USERS\.default\Software\Microsoft\Windows\Current Version\Explorer\Shell folders
HKEY_USERS\.default\Software\Microsoft\Windows\Current Version\Explorer\User Shell folders
Once you find Favorites under the first key, right click it and select Modify.
The Edit String dialog will open. The Value Data field should contain the correct location of your Favorites folder. If it does not, enter the right location to restore your missing Favorites folder to Internet Explorer.
The correct location for Windows XP is:
C:\Documents and Settings\<Current User>\Favorites\
The location for Vista is: