I haven't seen this problem, but:
Try turning the Favorites feature off, then back on.
Right click on desktop, select "personalize". Click on "taskbar and start menu" (lower left of the windows that opened). Click the Start Menu tab. Click the Customize button on that tab. Scroll down and uncheck the Favorites menu. OK or apply.
Repeat and recheck to turn Favorites back on.
Hope it works.
If you did an upgrade-in-place form Vista to Windows 7, and that's the worst problem that resulted, you're luckier than some. (I'm a fan of clean installs.)