IE has separate files for each favorite, which strikes me as a very inefficient method, and very hard to deal with
Inefficient possibly, although with today's disk sizes that hardly matters. But hard to deal with, no. IE Favorites are just shortcuts, and you can rename them, copy them, change the url, change the icon, move them between folders, etc., in exactly the same way. You can also back up the Favorites folder and its contents just like any other group of files.