We reported a few days ago that Favorites sync was temporarily turned off in Windows Live Toolbar for all users due to a technical glitch on the server side. The Windows Live Toolbar team just announced today that this has been fixed and the feature has been re-enabled:

We are happy to report that this issue with the “favorites sync” feature on Windows Live Toolbar has now been fixed and you can now re-enable this feature. As we mentioned in the original post, no data was actually lost and everything will work as expected and you can again get your favorites synced back to your browser on your PC.

You can access your synced Favorites at http://favorites.live.com