Yes, you're correct. I think the changes were made in Lion.
You only have the three categories you mentioned in Mountain Lion's sidebar. You can drag then into the order you prefer and the Finder's preferences give you some control over what appears in each category. You can drag 'n drop folders and saved searches (and probably more) into the Favourites section of the sidebar.
|Street Food by poppyjk|
from Your City - Local Street Vendor
|Tomato Clownfish by chile7236|
from Fish world
|Vermont-Autumn by kevinplui|
from My Best Photo of the Week