Favorites can be found using Windows Explorer (R-Click the Start button and choose Explore or press and hold the Windows button on the KB and then tap the letter E... if you're a KB shortcut fan)
Expand (click the + sign) Local Disk C
Expand Documents and Settings
Expand your profile and look for the Favorites folder. This is where all the IE favorites are stored. I recommend backing it up every now and again to someplace NOT in your profile.
OK, this is where your favorites are stored... are they there? If not did you recently use a super anti-spyware cleaner upper utility? Some programs consider your IE history as personal data and delete it. Check there to see if there is a Restore option. It can also be deleted from IE Tools Internet Options but I dont know of a restore option here. How about a system restore? Kind of like swatting a fly with a sledgehammer but it works.