I opened up Final cut (Studio 5.1) This morning to find it had reset itself and managed to wipe all my favourites off the effects tab. I don't care about having to revert everything else back to normal; but I want my favourites back. Does anybody know how this can be done? Or perhaps where the folder is, where the favourites are stored?

welcome to the value of backing up your prefs with FCP rescue. nope, you're stuck. best you can do is find clips with the set ups you like and drag those bad into the favs bin

what's FCP rescue?

FCP Rescue is/was a 3rd party freeware utility for backing up your FCP preference files, restoring backed up preferences, and also deleting existing preferences (so that FCP is forced create a fresh new set).

.. but it stopped working with the latest OS X version (Leopard).

No worries, though, RIP the venerable FCP Rescue and long live the new king, Preference Manager, which is the latest and greatest 3rd party freeware utility of this type. IMHO its far superior to FCP Rescue and/or the commercial alternatives. Grab it here:
http://www.digitalrebellion.com/pref_man.htm