This feature is called Favorite Icons. It's more of a demo of the future of IE since Microsoft put the icon in the temporary files which are deleted after some time or by user action.
Nothing is broken, but people didn't expect this or know how it worked.
Find the program FavOrg if you must, but with the ongoing security problems, my advice is to move out of the line of fire between malware writers and Microsoft. Getting used to another browser is a good idea.
Bob
If I add a new URL to my favourites I sometimes see a site related icon e.g. a red Y for Yahoo. After a short time (a few days) the icon reverts to the default IE icon. Could it be related to opening multiple IE windows? Any idea how to prevent this?

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