I was duel wielding a scimitar and a short sword. Both had magic weapon and (I presume) dark fire casted on them.

The favoured enemy bonus did not apply to them. I switched between duel wielding and single wielding both weapons and they still did not have the FE bonus applied. Once the darkfire and magic weapon wore off, the favoured enemy bonus came back into effect.

Bug or working as intended?

Addendum: Also had my great sword magic weaponed and the FE bonus disappeared again!

Also, FE vs. Elves.

It's a stacking issue with Magic Weapon and Favored Enemy.

1) What elves are you fighting anyway? 2) The actual AB is probably still correct against them. The Character Info window is notorious for displaying incorrect information. Check this.

I actually wasn't fighting elves at the time.

Well quit complaining!

Yeah, as Kotenku said, the character sheet shows your FE incorrectly once magic weapon is on but it still applies if you watch your combat log.