The favourites are handled through a plugin called kmeleon_favorites.dll, and the netscape bookmarks are handled through kmeleon_bookmarks.dll, remove the one you don't want, and they're gone -- you can remove the menu entries through Edit|Preferences Menus, or by editing menus.cfg in your profile directory.
take a look in c:\windows\application data\kmeleon if you're on 98 or c:\documents and settings\application data\kmeleon if you're on one of those newfangled operating systems
I'm on oldfangled 95. I do have c:\windows\applications data, but nothing related to kmeleon there.
No profile(s) directory anywhere containing kmeleon stuff. I've searched the disk for "kmeleon" - nothing outside the kmeleon directory. There I have \defaults\pref\ containing 2 js files, changing those doesn't make things happen.