Before we proceed, here is a word of warning. Making changes to the Windows Registry can cause irreparable damage to the operating system resulting in the need to reinstall Windows on a clean hard drive. Before you make any changes to the Registry, backup all your important files or leave the editing of the Registry to a professional.
First, go to the following directory and make sure your Favorites are where they should be. Go to:
c:\documents and settings\user account\favorites
where “user account” is the name of the account with which you are having trouble with your Favorites. The drive letter may be different depending on where Windows is installed on your computer. If your Favorites are located here, you need to check that Windows knows where your Favorites reside on your hard drive.
Click on START and then click on RUN. Alternatively, you can hold down the Windows key on your keyboard and hit the “r” key. When the RUN window opens, type in the word “REGEDIT” without the quotes and click on OK.

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You are now using Windows own Registry Editor. Using the + signs next to each of the following items, click until you are viewing the contents of the following Registry folder (see Figure 1):
HKEY CURRENT USER\Software\Microsoft\Windows\CurrentVersion\Explorer\UserShellFolders
Double click on the FAVORITES item in the right pane and the EDIT STRING window will open. Notice the value of the VALUE DATA box (see Figure 2). This is the location of your Favorites folder. By default, it should read:
%USERPROFILE%\Favorites
where %USERPROFILE% is the location of the current user’s personal files and settings. This is normally located at:

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c:\documents and settings\user account
where “user account” is the name of the account you are currently logged in with. Although the drive letter could be anything other than “c,” most people install Windows on a computer’s “c” drive.
If the VALUE DATA is anything except:
%USERPROFILE%\Favorites
Type that string into the VALUE DATA box and then click OK. Restart your computer and your Favorites are likely to operate normally with Internet Explorer 8.