I downloaded the latest version of M-Files and now when I right click a file there is no option to Add to Favorite. In the previous version there was an option to Add to Favorite. Has this option been removed?
Yes, Favorites are getting gradually deprecated in favor of the Pinned tab as these provide similar functionality. You can access your existing favorites via All > Other views > Favorites and move them to the Pinned tab via the context menu option "Move from Favorites to Pinned".
The Pinned tab will get further enhancements in the near future, for instance the possibility to view it in a list mode.