Is there any way to get tree organisation for Windows 7 file explorer favorites?

Solution 1:

Microsoft in its infinite wisdom decided in Win7 that Favorites do not need nesting.
One can include a folder in Favorites, but that points to the physical folder as-is.

I believe that the only solution is to abandon Favorites and use a library instead.
You may even name this library "Favorites".

Solution 2:

No, this is impossible in File Explorer.