I'm not a WASD keyboard movement users. Never will be. I use ESDF for the extra hotkeys - and due to plain out familiarity. That being said, you CANNOT bind favorite items/weapons in PC Skyrim if you map your "F" hotkey anything than what it's set to by default.

Normally this wouldn't be a problem, would it? Oh no. So many game companies for 20+ years have been able to figure out hotkey assignment correctly. However, Bethseda doesn't seem to get the memo - and instead of getting better, they get worse with each game. Now I'll hold my console-UI-driven rant, but this is ridiculous.

They left out the "Favorite" hotkey binding. Yes. There is the "Favorite" hotkey mapping under key settings to bind your Favorite menu - however there is no key to actually bind the "Set Favorites" ("F" by default). So unless I switch over to the default key bindings, I can't favorite an item because the game believes my label favorite key is a movement key. And I have no way to change this in-game.

So. Is there a file where I can modify hotkeys? I'm curious to see if there's a spot for modifying the favorite assignment key since there isn't one in the in-game options menu. This is very annoying and completely inexcusable.

You have to use whatever you have mapped for 'Toggle POV' to set your favorites. Even this may still have problems, when I had it mapped to my middle mouse button it wouldn't work. Changed it again and now it is fine.

Edit:
Also worth noting, when you do have your favorites menu mapped to a different key, the new key apparently will open, but NOT CLOSE the favorites menu. You need to use 'Q' or 'Tab' to close the menu. This interface is just silly.

Thanks! POV button did the trick. Silly this was not mentioned on the hotkey menu...

UI its got some real problems that I cant believe the testers missed, hell they should paid me to test this stuff, also I read somewhere you should press T while in the controls menu to reset the keys to factory settings, ill try this in a bit.

Oh good lord, I didn't even think of that, since the UI menu still would say "F"=Favorites, or remove items from alchemy bowl etc...argh, don't I feel silly. Or maybe it's the UI that's silly/buggy. Yes, I think it's the latter.
Thank you, I'll try that.