It works on my Apple TV. I wonder, however, whether you might need to start by marking an initial favorite using YouTube's website. That's how I started my original set of favorites and they still show up on the Apple TV and since that time I've also added favorites using my Apple TV.No, I'm with clcnyc. The "Save As Favorite" has NEVER worked for me, even with the 3.0 update (and, yes, I'm signed in under my account).
I was hoping the software update would fix that problem (and the bug where your Podcast "favorite" images sometimes disappear, never to be fixed until you remove and re-add the favorite). Alas!
It works on my Apple TV. I wonder, however, whether you might need to start by marking an initial favorite using YouTube's website. That's how I started my original set of favorites and they still show up on the Apple TV and since that time I've also added favorites using my Apple TV.