Only n00bs use IE
I use IE on windows and I'm not a n00b.
Is there a registry flag you could toggle to resort the list?
As far as I know there isn't a flag but there is a key called MenuOrder
(HKEY_CURRENT_USER->Software->Microsoft->Windows->Currentversion->Explorer->MenuOrder->Favorites). The problem there is that it's a in a binarry format.
The codeproject link is worth a look first.
One solution is to back-up the registry and try and delete all the keys in the Favorates key.
Here's something about it http://www.microsoft.com/communities/newsgroups/en-us/default.aspx?dg=microsoft.public.windowsxp.customize&tid=e87d8315-3f37-407d-b90f-a43cd6844657&cat=en_US_20a99704-5b96-4498-b9d1-a6aed1faa89a&lang=en&cr=US&sloc=&p=1
And one or two other places of interest
http://www.pcreview.co.uk/forums/thread-3465651.php
http://www.codeproject.com/KB/shell/iefavdecon.aspx