Heres the deal....
Windows 2000 ran out of virtual memory, and after the reboot, the favorites menu appeared empty (when viewed from start, or from internet explorer) but the Documents and settings\username\favorites folder still contained its shortcuts....
Windows had reset itself to point the favorites folder to c:\winnt\favorites, and didn't want to give it up.
I started with editting the registry, changing the HKCU shell settings back to the proper c:\documents and settings\username\favorites, and editing HKLM shell settings to the proper %username%\favorites. You know what I'm talking about, and searched the registry for any other improper references and fixed them as well. Then deleted c:\winnt\favorites and rebooted. Well, windows rebuilt the c:\winnt\Favorites and replaced all the favorites references in the registry with the c:\winnt\favorites entry!
So I tried again, regedit, repair the entries, close and open regedit, yup changes were still there, deleted winnt\favorites, this time instead of shutting down and rebooting (in case it was changing them on shutdown) I hard booted the machine from windows, when it came back up, again, the folder was created in Winnt, and the registry was changed!
Anyone ever seen this, or can offer another opinion on how to fix it?