I gave up!. I never was able to figure it out. I tried all of the fixes with no success. I am using Windows 7 Build 7100 rtm and I have on order the Windows 7 copy out Oct 22 so I will wait for it.
I downloaded Firefox browser and it works five. Neither Chrome or Internet 8 would let me save favorites. It worked fine originally but something happened.
Ok, no worries... I think one of the reasons given in the above link as to why it wasn't working was that one of the users had over 1,500 favourites... Not sure if this helps any but as you've found a solution of sorts it doesn't really matter..