Update:

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.

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For anyone who uses the “favorites sync” feature on Windows Live Toolbar, we have an important notice. We’ve heard from some customers in the last 24 hours that in some cases, favorites have been removed from the Toolbar when they synced from one or more of their PCs. We have investigated, and we want to assure you, that if this is occurring for you, your favorites are still available on SkyDrive at http://favorites.live.com.  We apologize for this inconvenience and are diligently working on a fix to restore favorites from SkyDrive to your PC.

In order to prevent any further issues with favorites sync from Toolbar, we have temporarily disabled syncing of favorites for ALL Toolbar customers until we have a fix ready. We will update this blog once we deploy a fix and restore the favorites sync service. In the meantime you can sign in to Windows Live SkyDrive to access your favorites. Alternatively, you can also recover your favorites from the Recycle Bin on the PC where they were removed.  

Once again, we apologize for the inconvenience. We hope to restore the favorites sync service as soon as possible.

- Windows Live Toolbar team