I always keep the Favorites folder on my Drive D to prevent any changes I make to Drive C from causing me to lose the Favorites.
To do this, first create the new folder that you want to use as the Favorites. For example, Favorites on Drive D. Now click Start, Run, type in "regedit", and press Enter.
Navigate to
HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Explorer\Shell Folders.
In the right pane of RegEdit, double-click Favorites and change the contents to d:\favorites (or whatever you choose as your new folder).
Next, navigate to
HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Explorer\User Shell Folders and set Favorites to d:\favorites as well.
With both changes made, choose Registry, Exit. When you next run Microsoft Internet Explorer, the new Favorites folder should load.
Source: Jim Pile, Windows_SysAdmin_Tips
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