Windows XP stores the location of per-user special folders (including Internet Explorer Favorites location) here:
[HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Explorer\User Shell Folders]
By opening the Registry Editor manually, you can change the path there. Or, use TweakUI and change the location of these Special folders. There are two versions of TweakUI, one for Windows XP and other for Windows XP SP1 and above.
TweakUI v2.00 for XP | v2.10 for XP SP1 & above
You can redirect the locations of the following folders using TweakUI: My Pictures, My Music, Send To, Start Menu Programs, Desktop, Favorites, CD Burning staging area. For redirecting the Shared folders, see here
Open Tweak UI, click My Computer and Special Folders. Change the Location by
selecting the appropriate entry in the list box.
For redirecting My Documents, you may try this as well:
Click Start, right-click My Documents, and then click Properties.
Click the Target tab.
In the Target box, do one of the following:
Type the path to the folder location that you want, and then click OK. For example, D:\My Stuff. If the folder does not exist, the Create Message dialog box is displayed. Click Yes to create the folder, and then click OK.
-or- Click Move, click the folder in which to store your documents, and then click OK twice.
If you need to create a new folder, click Make New Folder. Type a name for the folder, and then click OK twice. In the Move Documents box, click Yes to move your documents to the new location, or click No to leave your documents in the original location. More Information: http://support.microsoft.com/?kbid=310147
NOTE: Sometimes, you don't see the three options namely, Restore Default, Move, and Find Target.
This is due to the presence of DisablePersonalDirChange Policy / value in the following Registry path:
Backup the key and delete the DisablePersonalDirChange value. Setting it's value to 0 [as in the docs] may not help.