Steam shows the favorites at the top of the list, then shows the rest of the games. I understand if it's not possible due to copywrite issues.
This is entirely possible using categories, Playnite even automatically detects currently favorited games and sets them as favourites.
I solve this for myself by having a category in Playnite called just "_" which contains my favourites. The character _ is sorted as a first one in the alphabetical sorting of Playnite and therefore the category shows on the top.
I also second this enhancement. I would love to see favorites at the very top of the list regardless of the type of grouping.
+1 for this. Ideally I'd like to see my favorites at the top, and then everytihng else sorted by when I last played it.
It would be nice to see a visual representation of favorites as well, a star or heart next to the game name in the title page seems like a good place.

Clicking on this icon would toggle adding/removing a game as a favorite.
@livejamie Could you please open that as separate issue? I think we can implement it separately to this (it's IMHO easier).
Sure
Absolutely +1 on this, would be amazing to see it implemented. For me it's the only feature missing in the launcher. Favorites should automatically be moved to the top in a "Favorites" category without actually being categorized or sorted manually.
Furthermore, unlike the "Categories" route, I would prefer them to actually stay in the library list. That way when you browse all the games and skip the favorites, you still actually see all of your games.
Personally, I'd like the ability to pin any category to the top of the list, preferably via context menu, if possible. I use categories to manage my game backlog across multiple machines, but not the favorite category, specifically. Should I open a separate feature request for that? It does have a decent amount of overlap to this one...
I'm working around it now by prefixing a category name I want sorted to top with an asterisk, so this isn't exactly a high priority request, just a convenience.
+1 this. Just got Playnite and I'm using _ as a category for my favorites to keep them at the top.
I sincereley hope that this all won't evolve into the Steam categories system which is the very thing I have escaped from.
Also it would be great to be able to choose favorites as quick launch items:
