There are two methods that can be used to hide the Links folder, one using the registry and the other using file attributes. Both methods are detailed below:

Using the Registry

1. Open the Registry Editor click on the Start button on your taskbar, then click on Run and type "regedit" and click on OK to start the regedit utility.
    
2. Expand HKEY_CURRENT_USER\Software\Microsoft\Internet Explorer\Toolbar (see picture 1).
   
   

   Picture 1

3. Set the value of "LinksFolderName" to equal a blank string. Open Internet Explorer and delete the Links folder from the Favorites menu.
    
4. The next time you start Internet Explorer the Links folder will not be recreated.

Using File Attributes

Using Explorer find the location of your Favorites folder (e.g. C:\Documents and Settings\horstl\Favorites) within that folder will be a sub-folder named Links.

Select the Links folder and right-click (or secondary click) and select Properties, check the Hidden checkbox and click OK. From now on the Links folder should be hidden from the Favorites list. This works for any other folder or link on the favorites menu as well.

Note: The Links folder must be manually deleted from the favorites menu. This tweak stops it being automatically recreated.