I seem to be having problems setting the number keys for my favourites. I highlight each favourite then hold down the corresponding number key for a few seconds. Nothing happens.
What am I doing wrong?

Where exactly are you doing this? Your post is not entirely clear...

In the inventory menu? Or in the Favorites (Q) menu?

It should just be done while hitting "Q" in game, selecting the item, and assigning a number. I seem to have issues getting it to register 9 and 0 though.

I didn't even know it's possible to bind to number keys. If you buy from Steam, is there a PC manual or readme file?

The manual "should" be accessible by right clinking on the game in the game browser. Not every game provides a manual though.

Upon further examination:

http://cdn.steampowered.com/Manuals/72850/skyrim_gfw_manual-07.pdf?t=1321314358

The hotkeys are 1-8.

@KommissarK Bingo. Thanks for the link.

You have to favorite an item first. Hold your cursor over an item (you don't have to click it, just highlight it) and hit the Q key. Exit the menu and hit Q again to open the favorites menu. Highlight the item you want to hotkey and hit the number key you want to assign (1-8).

Not again!
Does these items appear on player model at least?
(I kinda know the answer, but please plant last nail between my eyes)

Thanks for your help