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.
|Waffles with fruits by Coolinarka|
from Food photography (desserts)
|Vestrahorn Frozen Reflection by Will B Milner|
from Ice cold