Favicons not showing in Safari 5.1.1 on OSX Lion?
After doing some research it turns out I am not the only one with this problem, and Safari has changed the location for it's favicon database. 

From this Apple Forum discussion:


  
  Quit Safari. 
  Go to ~/Library/Safari. 
  Move the WebpageIcons.db file from the Safari folder to the Trash.
  Relaunch Safari.