When you right-click on the Favorites list "Sort by Name" is the only option. Personally I prefer to sort by date myself so I just create a shortcut for the Favorites folder in Windows Explorer for the desktop. Then just click on the desktop icon, it opens Favorites in Windows Explorer. Then click the date column to sort by date (assuming you are in details view and have added the date column). Of course, this method isn't completely foolproof since Windows has a way of resetting all the dates sometimes. Then you're back to sorting by name anyway but it was good while it lasted. (I long for the stability of Win 98!)
Of course, the primary way of finding stuff you know you have somewhere is to type a few key words in to the start/search box.