As far as I know, there is no setting in Edge Chromium to change line spacing in the Favorites menu. The line spacing, as you point out, is problematic, and I hope that the Edge team will move in the direction of closer line spacing.
Another thing that I hope that the Edge team will change is the "flyout" way in which Edge Chromium Favorites are accessed. The hierarchical method, used both in Edge (Classic) and Firefox, is much easier to use, and the "flyout" menus are particularly difficult to use on small (e.g. 11") laptop screens.