From IE: Click Favorites menu and right-click an item, "Sort by Name".
For "on-the-fly" sorting of favorites, follow this tip (by Keith Miller)
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If you want the Favorites to automatically alpha-sort even as new entries are added, you need a registry edit. Navigate to:
[HKEY CURRENT USER\Software\Microsoft\Windows\CurrentVersion\Explorer\Menu Order\Favorites]
Delete the value named 'Order'. Also delete this value for any subfolders. Then, with the favorite key highlighted, click on Edit > 'Permissions...' -> 'Advanced' -> 'Add' -> type your username in the 'Select User or Group Box' and then deny 'Set Value' permissions to yourself. This will prevent IE from recreating the 'order' value and it will default to alpha sort. This will prevent the key from being automatically recreated.
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In addition to Ramesh's helpful alphabetizing regedit, you might want to
take a look at this download that does not impact any aspects of your
favorites list, but also supplies a homepage view and added functionality
*in addition* to anything you do with your favorites. I find this very
helpful. See Robert Rimes Perry's Favorite's Home Page:
Also see this which helps you to send your favorites list--a number of
people post their lists on the web with thanks to Kelly's XP Tweaks Site and
a Kelly Page on Favorites--in particular "Faves to Go:"
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