There does seem to be some confusion over the various contact lists/groups on the phone and on Google Contacts.
BTW, Google Contacts can be accessed through your Gmail account (left side menu -> Contacts) or directly at www.google.com/contacts
All [phone] = My Contacts [Google Contacts]
Favorites [phone] = Starred in Android [Google Contacts]
Co-workers [phone] = Collegues [Google Contacts]
Family, Friends [phone] = Family, Friends [Google Contacts] resp.
user created groups [phone] = user created groups [Google Contacts], and vice versa.
All Contacts [Google Contacts] is never
sync'ed on the phone.
All the above get sync'ed together, you can't cherry pick.
.....runs with scissors - NO FEAR!
Nokia 1610 > Nokia 6110 > Nokia 5110 > Nokia 7110 (The 'Matrix' Phone - still got a brand new, unopened one of these!) > Nokia 6310 > Nokia 7210 > Orange SPV E200 (HTC Voyager)> Orange SPV C500 (HTC Typhoon)> Orange SPV M2000 (HTC Blue Angel)> Orange M3100 (HTC Hermes/Black Majik ROM) > HTC Touch HD > HTC Desire > Google Nexus S > Google Nexus 4