How many favourites do you have and how big is the Favorite.dat file? If it's rather large, then that's possibly why you're running into issues with favourites.
You can probably delete most (if not all) of the data in the backup folder. I always keep the latest 5 or 10 copies though.
For reference i have 568 favourites and the file is 938kb. No issues on my end.
You can get the total by using the update site icons feature and checking the progress meter number down the bottom.
For flash to be working in Retro you need to also have the IE version of flash installed. Easiest way is to run Internet Explorer and install flash using that, as it will detect and install the right version. It should then work in Retro.
Although you shouldn't have to be using Retro for youtube.
Goto https://www.java.com/en/download/installed8.jsp and see if it can detect if Java is running/installed.