OS: Lion Mac OS X Version 10.7.2
As simple as it may be, some people may not be aware of the “Hide” & “Show” option within the Finder sidebar. If you accidentally Hide your Favorites, you may not realize that there is a “Show” button that appears when your cursor hovers over that particular area.
This is what your Finder may look like.
Hover your cursor to the right of the word Favorites and the word “Show” will appear for you to click.
Now you can see your Favorites are back.