Try looking in the Documents and Settings folder on the C drive in Windows Explorer (start Windows Explorer by right clicking on the Start button and selecting Explore from the popup menu). There should be a folder there with your user name, like HP_Owner. Look in that folder for the Favorites folder.
Since Windows does not allow you to delete the Favorites folder directly, you will need to delete everything in it. Select the Favorites folder in the left box of Windows Explorer and then select everything in the right box (this should be all of the contents of the Favorites folder).
To select everything easily either click on an item in the right box, go up to the Edit menu and click on "Select All". Or select the first item in the right box, go down to the last item, hold down on the Shift key and select the last item (this should select everything in between the two items).
Once everything in the Favorites folder is selected, press the Delete button. That should get rid of all of your Favorites.
If you cannot find the Favorites folder that way, try this. Type "regedit" in Run of the Start menu and click OK. This will open the Registry Editor. Find HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Explorer\ShellFolders in Registry Editor. In the right box find the Favorites item and that value should tell where Favorites is located.