Windows XP Home only allows Simple File Sharing, you can not turn it off. If you really want to see if you have permissions to the Favorites folder, you could restart your computer and boot into Safe Mode (press F8 during the boot process right after the BIOS screen flashes up). Select the Administrator account from the Welcome Screen. Once you have logged in with the Admin account, navigate to C:\Documents and Settings\%username% (%username% = your username). Right-click 'Favorites' and select Properties. Select the Security tab and find your username on the ACL. Do you have Full Control permissions? If not give yourself the proper permission and reboot into your account. This could be the issue, but I don't think so as I tried to simulate this on my Mom's XP Home machine and it completely removed access to the Favorites menu from Internet Explorer, rather than what is occurring with you.
Also try booting into your account in Safe Mode. Does this problem happen in Safe Mode?
Did you try checking the permissions of the Component Services? Start >Run > type dcomcnfg Expand Component Services, expand the Computers folder and right-click 'My Computer' and select Properties. Select the COM Security Tab and click 'Edit Default' under Access Permissions. Are both 'Self' and 'System' listed? Do they both have Allow permissions on Local Access?
Joey
A+, Network+, MCP