You can find it in Free Mode by going through Settings, then Edit Category or something. I hardly use the Favorites folder, and I don't think it is available in Arcade Mode.
Yes, go into Free Mode, and then there should be two settings labelled "Edit Favorite 1" and "Edit Favorite 2", respectively. Click on a song to highlight it (put it into the folder). Click again (hurhur) to remove it.
The "Edit Favorite 1" and "Edit Favorite 2" options are under the Settings category on the song select screen on 9th, 10th, and RED. Favorites didn't exist before 9th.
__________________
Quote:
Originally Posted by tomokosasaki
GOLD will come with 2nd conclusion!! Just have some trust. I can't always tell my source! But, in the end, you'll see i was right and this conversation won't matter anymore.
Favorites folders? 
