Matt,
Okay, I understand now, thanks! Got to say from a user perspective it's a bit odd. Anything in the favorites section should just be pointers and as such should be able to be removed with affecting existing file structures on a hard drive. JMTC
The Favorites is essentially a list of paths to show as folder trees. To have the Favorites 'hide' parts of your file system would not 'just be pointers'. It would have to have an additional list of paths to not show, even though they exist on your filesystem.
I'll illustrate with a simple example:
File system:
Folder A
Folder B
Folder C
Folder D
Let's say you add Folder A to Favorites. You would then see:
Folder A
Folder B
Folder C
Folder D
But let's say you don't want to see Folder C. Folder C is not a Favorite. Only Folder A is a Favorite. The Favorites would have to provide a means to ignore Folder C, even though it is a subfolder of Folder A. If it offered such a feature, it would also need to let you know that a folder is hidden and provide a means to un-hide it, complicating the UI even further.
If it did offer such features you would then see:
Folder A (*contains hidden items)
Folder B
Folder D
The Favorites are paths to folders that you add to it. The contents of those Favorite folders is the structure found on the filesystem. If you add or remove subfolders of a Favorite folder on your filesystem, those changes are reflected in the Favorites too.
Anyway, if you want the ability to hide folders on your filesystem, then feel free to make a Feature request.
-Kirk