This error usually happens after a person acidentally moves the Favorites folder to another folder like Documents or Pictures. To fix this go to:
*Replace %username% with the actualusername of the user who is having the issue.
Once you do find the folder “Favorites” right click it and select properties.
Click on the location tab. Then Click on the “Restore Default” button.
If you know where you acidently moved the favorites to move them back to the Favorites directory.
You will now be able to use your favorites in Internet Explorer.