I would like to sort the names by last name first as well. I have over 1200 names in my contact list and since I am a lobbyist I know most of the member of Congress as "Congressman __________" or "Senator _____________". It seems like a simple fix and I have never understood why the Android phone won't permit you to sort them the way you would like to do it. A phone should provide you with the options that you want, not the other way around.
I"ve just got the original Droid, but I can sort my contacts by last or first name.
Bring up your contacts -> menu -> display options -> sort list by -> first or last name
But when you select the favorites and -> menu there is no display options so you cant change it